Our firm technician has been muttering concern about weak and declining volume in the stock market rally since last May. Day after day, as price moved up, volume moved sideways and down. A bull market is supposed to have volume moving up in tandem with price as more people buy into “belief” in the market and the recovery.
One of the features which have exasperated this trend over the past year I believe, is the fact that 50-70% of the trading volume has been driven by the banks and their proprietary trading desks rather than managers and institutions buying in on investment merits. This has left the market very toppy, thinly traded and subject to large and sudden dislocations like we saw last Thursday. When the flash trading crowd pulls their bids, the buyers disappear and prices can plummet very fast. These are not healthy or reassuring conditions for investment capital. We need more than “3 guys” trading to give this cyclical market staying power. And for all Warren Buffett's cheerleading the past couple of weeks (recall he did the same thing in the fall of 2008 when he bought his unique deal in Goldman Prefs), institutional holders have been selling off Berkshire Hathaway shares since March 5th.
In the past several weeks we have seen a significant pick up in general market volume but only ON DOWN DAYS. This is generally a very bearish indicator suggesting 'distribution' which means those that have held equities for early parts of the rally have been continually selling as prices moved higher. In the past few weeks as volatility accelerated and the market experienced large negative swings–the volume of shares traded jumped significantly.
Today James Bianco examines this trend and what it suggests on the Big Picture Blog. See: Heavy volume continues to suggest this correction is important. Buyers and holders beware.
Cory’s Chart Corner
“An explosive critique about the investment industry: provocative and well worth reading.”
“Juggling Dynamite, #1 pick for best new books about money and markets.”
“Park manages to not only explain finances well for the average person, she also manages to entertain and educate, while cutting through the clutter of information she knows every investor faces.”