Thin Market

Thin happens when few stocks are trading. Bonds too, actually. Thin is illiquid. Thin is when there just aren’t a lot of buyers at the given price levels. Thin is when trading volumes are described by the CNBC commentators as “anemic.” Thin is when the headlines ask, “Where have all the buyers gone? Long time passing…”

Fat is high volumes. Lots of cash being put to work buying securities. Fat is big demand to buy a big supply of, um...supply. Fat, or liquid markets, are generally driven by cash being put to work, which came from investors who simply saved their pennies to then deploy them in the markets, taking on more risk by being exposed to more volatility…and generally speaking, high liquidity, even in a world where the stock market is flat, is generally perceived as a bullish, or positive vote, in the future of stock market values.

Lots of opinions then go to work assessing the upside and the downside of the market, such that the gumball estimate effect is in place. And if you didn’t go to third grade in the last decade, the gumball estimate game revolves around the idea that, if many opinions estimate the number of gumballs in a big fish tank, those numbers get averaged, and way more often than not, the average guess is, in fact, very close to the actual number of gumballs crushing down on the guppies and goldfish. (Maybe we were supposed to remove the fish first.)

The same holds true in the stock market, where the aggregation of many opinions usually makes for better decisions, and in the case where a market suddenly grows thin, it means that a lot of educated, well-heeled investors have been spooked by the notion of taking on risk in their portfolios. So they de-risk, or simply keep the cash in their wallets, not wanting to put it to work until better signs come from, uh...on high.