Highly correlated markets, which currently includes the U.S. exchanges, can expect to have low trading volumes -- a potential death blow to trading firms.
Consider that markets with strong correlation -- meaning most stocks will go up on a good day, or nearly all will go down on a bad day -- leave little room for investors' stock picking skill. It doesn't matter if you invest in company X, Y, or Z, only that you've invested on certain days over short time periods.
"There's no distinguishing one stock from another. Why spend a lot of money on commissions?" says Barry Ritholtz, author of the best-selling book Bailout Nation. He adds that high correlation/low volumes have recently contributed to the closing of the "formally robust" trading firm Ticonderoga Securities.
One of the reasons we have such high correlation, speculates Ritholtz, is the increasingly prevalent use of exchange-traded funds (ETFs), which allow investors to buy into entire industries or trends with a single trade.
It also doesn't help that people still tend to be distrustful of equities. Even if the markets are offering attractive evaluations, it may be a long time yet before the public forgives and forgets.
Business section: Investing ideas
"The only time to own a stock is if you believe it's going to outperform the index," adds Ritholtz.
Trading volume for the stock market as a whole may be declining, but we've found several examples of stocks exhibiting high volume gains over the last week.
And to further refine the list, we collected data on insider transactions and identified a list of nine companies that have been boosted by insider buying over the last six months.
Insider execs think these high-volume rallies are sustainable -- do you agree? Use this list as a starting point for your own analysis.
List sorted by performance over the last week. (Click here to access free, interactive tools to analyze these ideas.)
1. Star Scientific (Nasdaq: CIGX): Engages in the development, implementation, and licensing of tobacco curing technology that prevents the formation of carcinogenic toxins present in tobacco and tobacco smoke, primarily the tobacco-specific nitrosamines (TSNA). The stock has gained 31.56% over the last week, with today's trading volume representing 6.14 days of average trading volume. Over the last six months, insiders were net buyers of 250,000 shares, which represents about 0.24% of the company's 103.97M share float.
2. CNA Financial: Provides property and casualty insurance products to small, middle-market, and large businesses and organizations primarily in the United States, Europe, Canada, and Hawaii. The stock has gained 0.79% over the last week, with today's trading volume representing 2.16 days of average trading volume. Over the last six months, insiders were net buyers of 40,000 shares, which represents about 0.15% of the company's 26.24M share float.
3. Cirrus Logic (Nasdaq: CRUS): Develops high-precision analog and mixed-signal integrated circuits (ICs). The stock has gained 4.25% over the last week, with today's trading volume representing 4.48 days of average trading volume. Over the last six months, insiders were net buyers of 152,115 shares, which represents about 0.24% of the company's 63.37M share float.
4. Community Trust Bancorp (Nasdaq: CTBI): Operates as the holding company for Community Trust Bank, The stock has gained 0.89% over the last week, with today's trading volume representing 2.32 days of average trading volume. Over the last six months, insiders were net buyers of 43,738 shares, which represents about 0.34% of the company's 12.71M share float.
5. Goodrich Petroleum: Engages in the exploration, development, and production of oil and natural gas properties. The stock has gained 19.30% over the last week, with today's trading volume representing 2.46 days of average trading volume. Over the last six months, insiders were net buyers of 41,387 shares, which represents about 0.16% of the company's 25.78M share float.
6. Inergy (Nasdaq: NRGY): Engages in the retail marketing, sale, and distribution of propane to residential, commercial, industrial, and agricultural customers in the United States. The stock has gained 3.09% over the last week, with today's trading volume representing 15.72 days of average trading volume. Over the last six months, insiders were net buyers of 90,800 shares, which represents about 0.09% of the company's 95.65M share float.
7. Viasystems Group: Provides multi-layer printed circuit boards (PCBs) and electro-mechanical solutions worldwide. The stock has gained 0.53% over the last week, with today's trading volume representing 5.41 days of average trading volume. Over the last six months, insiders were net buyers of 14,503 shares, which represents about 0.56% of the company's 2.58M share float.
8. Vistaprint (Nasdaq: VPRT): Operates as an online provider of marketing products and services to micro businesses worldwide. The stock has gained 8.82% over the last week, with today's trading volume representing 2.18 days of average trading volume. Over the last six months, insiders were net buyers of 613,552 shares, which represents about 1.98% of the company's 30.91M share float.
9. Western Alliance Bancorporation: Provides various banking and related products and services in Nevada, Arizona, California, and Colorado. The stock has gained 8.14% over the last week, with today's trading volume representing 2.05 days of average trading volume. Over the last six months, insiders were net buyers of 28,096 shares, which represents about 0.04% of the company's 68.85M share float.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Insider data sourced from Yahoo! Finance.
