What a difference four years makes! After bottoming in March
2009 at 666 - that devilish number - the S&P 500 (NYSEARCA:IVV)
today crossed above its previous all-time high of 1,565 (reached on
Oct 9, 2007) to close at 1,568. Thank you Ben BernanQE!
But new market highs are coming on lower trading volume. Is it a
Data from the NYSE Euronext shows a year-over-year -12% drop in
handled volume for NYSE stocks, -15.6% for NYSE Arca, -16.2% for
Nasdaq listings, and -13.8% for exchange-traded products (ETPs).
(See chart below)
Since the 2008 financial crisis, market volume for U.S. stocks
on all exchanges has declined by almost half. This is a very
different environment from previous down cycles in 1987 and again
in 2001, when the appetite for investing/trading in stocks
rebounded within a short period.
Then, something happened after the Flash Crash in 2010. The
stock market kept rising even though total capital dried up.
And by drying up it we mean volume shrank faster than prices rose.
What about now?
Since the short-lived selloff that took stocks down 20% in
mid-2011, total capital has again dried up. Based upon ETFguide's
Total Capital Traded (TCT) Indicator, we've approached late 1990's
levels at under $10 billion per day.
With average daily TCT back below $10 billion it is clear the
market's rally since 2010 is abnormal and not built on normal
supply and demand metrics.
Today, low NYSE trading volume has been offset by corporate
mergers and share buybacks (NYSEARCA:PKW) but the
sustainability of this activity can only keep the rally alive for
Keep the following in mind:
1) Rising volume on rising prices (NYSEARCA:SPY) is normal
whereas rising prices on falling volume is not;
2) Volume normally leads price (SNP:^GSPC) during a bull
move. A new high price (NYSEARCA:IWM) that is not confirmed
by volume should be regarded as a red flag;
3) Rising prices (NYSEARCA:DIA) and falling volume are
abnormal and indicate a weak and suspect rally.
Also, the length of this particular rally has been unusually
long. The average historical duration for cyclical bull markets
within a secular bear is only 3.1 years and only two other time
periods over the last 100 years have hadlonger rallies than the
What will be the final sign stocks have topped?
The April 2013 issue of
ETF Profit Strategy Newsletter
examines the breadth and length of the S&P 500's four-year
rally versus history. Also included is our 2013 ranking of top
commission free ETF brokers along with a short, mid, and long-term
outlook for stocks, bonds, and gold.
Watch our ETF Video at YouTube titled "
What Volume is Saying about the Market