Low Volume Equals Low Expectation and an Indecisive Market

March 5th, 2012
in Gary's blogging, Special Post


3:15    Over this past weekend I have read, studied and listed to the pros and cons of the markets pundits each taking a position of the markets continued rising or falling. I have to admit to being a near-term bear and have difficulty is seeing the bulls take over and climb out of the low volume doldrums we have been witnessing for the past 2 months. But any savvy investor would have difficulty in taking any position (involving real cash) with this lackadaisical, meandering and noncommittal market. These markets and the financial expectations on the World stage have defied any sensible speculation of what is going to happen in the foreseeable future. Betting on a market direction now is not going to be viewed as a sane act.

The arguments for rising to new highs and those for a correction are good but the one persistent variable week after week is the low volume. On this chart below from johnkicklighter show the falling volume I write so much about.

Personally, I can't come to a conclusion one way or the other just what LV really means. I am watching carefully as I know that movement in either market direction does not reflect a true state simple because there is little participation of investors.


Doug Short says, “Despite the continued superior performance of the 2012 year-to-date rally, but the trading volume doesn't offer strong confirmation.“

Some say this stint of low volume reflects a sick market and I for one would agree. It can't be a good thing if no one is interested and that is exactly what it looks like. What could happen to the markets next would be the reverse of the low volume melt-up into a low volume melt-down. Now wouldn't that be interesting and just what would it tell us? Probably not much more that the melt-up actually except that long profit taking came to an end and shorting began.


What usually makes markets move is the traders expatiation of increased profits or gains and is usually heralded by volume matching the enthusiasm of the move. Many of these determinations made by traders and investors alike are based on the technical aspects of charts, reading the tea-leaves as it were.

The technical charts that many are now touting to be “proof” that the market is going one way or the other lately can not to be relied on. This is because low volume only depicts a small segment of biased capitalists that essentially control direction for their own purpose. The larger majority in major moves isn't always right but at least market direction can be counted on because of collective participation. And that is what successful traders depend on.

The best usage scenario for charts of today is their historical value. Right now the optimum indicators are the facts at hand and unfortunately many of those are being skewed by the politicians and sheepie news pundits that have a mission of misinformation to support political ideologies. God forbid if someone were to tell the truth for a change, but then they would be called preachers.

From StockCarts they have put it into perspective with an interesting observation that DaBoyz have slowly been taking their profits so as not to alarm the cash crowd. Walking up the “public” could very well be the trigger that sets off a waterfall.

@expertstocktiming: “ . . . there has been slow, controlled profit taking since the end of January in spite of all the Greek and EU problems. No public panic levels are showing up yet, but the risk levels in the market are rising. "

And then we have rising oil prices for the last 24 days that can't be completely washed away because of insider manipulation. Tensions with Iran are certainly overblown simply because it would be the worst scenario for Iran remaining stable and the 12-member Council of Guardians keeping their power. They are misguided by religion but they are are not stupid either and most likely rattle their sabers to keep the price up for their own purposes. (Being stupid is debatable I guess) Yet oil remains in the recessionary zone fueling speculation of impending market disaster. One thing is for sure the market can not continue to rise with oil also rising.


Oh, did I mention the rise of the US dollar? Toby Connor has written the following that spells out another aspect of this developing dilemma of a stagnant market.

Will the market ever correct?

“That seems to be the question everyone has been asking themselves for two months now. Analysts have been trying to pick a top in this market for weeks. All the while I've been telling -- actually, begging -- people not to sell short. Until the dollar puts in an intermediate bottom there is just little chance that the stock market is going to suffer any meaningful correction. The unfortunate truth is that as long as the dollar continues to rally out of its three-year cycle low,  trading conditions are going to remain difficult. ”


Also noted at SA earlier today is the notion we may have more issues at hand than low volume.

@SA “Dallas Fed chief Fisher assails the preoccupation, "bordering upon fetish," of Wall Street with QE3. "Trillions of dollars are lying fallow, not being employed in the real economy. Yet (markets) keep looking for more?" Markets should prepare themselves for "Dr. Fed to wean them from their dependency." Fisher is not a voter on the FOMC this year. “


Written by Gary


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