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If Volume Is Rally’s Fuel, We’re Running On Fumes at Trader’s Narrative

If it is true that a lasting rally needs volume, then we are pretty much running on fumes here. While the market’s spring rally has been impressive, the volume behind it has been anemic. For example, take a look at last year’s spring rally and you’ll see the same pattern: higher prices accompanied with lackluster volume (orange line). And again in July 2008, we had a shallower price move with very poor volume levels:

SP500 volume rally comparisons

William Hester of Hussman Funds did a very good historical analysis of volume characteristics during important market bottoms: Comparing Bear Market Rallies.

But there is an important nature of volume that I don’t think he took into consideration. Everything else being equal, volume tends to be cyclical and follow a pattern. For example, it tapers off during holidays like Christmas and New Years (yellow squares on the chart). Volume is light from June to August - what is referred to usually as the summer doldrums. And it spikes for panic lows (you can see a few examples above).

This makes analyzing volume patterns very difficult because we have to adjust for the seasonality. In any case, it is not really justifiable to give the spring rally some wiggle room for this because it doesn’t overlap with any important seasonal volume changes.

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6 Responses to “If Volume Is Rally’s Fuel, We’re Running On Fumes”  

  1. 1 letitride2

    deflation. no volume since there is no credit or cash.
    the bank money is uncirculated and no charts exist
    for a deflationary economic contraction.

  2. 2 DOG1

    In you opinion how much of NYSE volume is now in dark pools? Could it be enough to impact the data?

  3. 3 graphseo

    letitride2 is right, we’re quite having good volumes on this rallye, it’s less than before because main businesses and banks are lacking money and using their tresory to survive before get investing again. Also after a crash, a bunch of people are still afraid to come back on the stocks, if you look back in 1993-1994 and in 2002-2003, volumes were quite low also but came in year after year as investors entering the markets became like sheeps. And it’s likely to do the same this time also. (When the sheeps start buying stocks, just go out of them).

    I’m not telling this is not a fake rally move, just saying that volume is quite difficult to compare for now to anything.

    Also, if you take a look at emerging countries indexes, you’ll see, they have gain a lot of volume and went higher than we are in the states or Europe.
    So the final volume of this rallye might be here, it’s just in a different place. Investors afraid of the outcome of the crisis for the states and Europe are just investing in mass in China, Russia, Brazil and India.

    wait & see

  4. 4 graphseo

    The volumes are here i think but haven’t they gone to the emerging markets, frightened by the outcome crisis could have on american firms…

  5. 5 Babak

    DOG1, who knows? all we know is they skim off more each year. I usually don’t look at volume because it is a difficult thing to measure. Price on the other hand, is there in black and white.

  6. 6 Hardhead

    Most of the Volume belongs to Goldfather GS and JPM… this is a classic pump n dump! Coming to a floor near you.

    Goldman last week came out with a report oil to SOAR just a day after a big build up… ohhhh please there is no such thing as market manipulation!


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