Who Needs Volume?

by Larry Levin

I have written about the amazing lack of volume many times and will again. After all, it is important and today may have set a record. There is almost no volume - yet the market slowly grinds higher. I have never seen anything like this in any market before.

1) Today's rally put in a new daily high.
2) Today's rally put in a new weekly high.
3) Today's rally put in a new monthly high.
4) Today's rally put in a new high for the year.
5) The VAST MAJORITY of the day's activity (5 HOURS) traded in just a 1.75-point range.
5) TODAY'S RALLY WAS DONE ON THE WORST/LOWEST VOLUME OF THE YEAR! Who needs volume anyway?

Today's utter lack of participation by anyone has - for me - now passed the absurd and is now firmly surreal. Of course the longer the FED overtly manipulates interest rates, the longer the surreal will continue.

From an earlier post of mine - already a "classic."

FAT MAX

I have often mentioned the massive, colossal, gigantic...LACK of volume on all days other than bearish days. According to volume data that I collect daily from the NYSE, equity volume on rally days is approximately 30% to 40% less than that of bearish days. The market is somehow continuing to advance on an ever slimmer amount of volume.

Some may wonder - what's the problem? Well, if this worked forever, we'd expect to see a +175 point Dow rally with only 100 shares traded on the NYSE, and I'm sure we'd all say that's impossible. In normal non-government (central bank) backed markets, when higher prices choke off volume, prices reverse for a while. New information is needed for another rally attempt; anything new that the bulls can cling to to drive it up is embraced, but something is definitely needed. The markets need this additional support; without it, the rally reverses.

The market and volume is a little like my buddy Fat Max. Fat Max is a wide metal tape rule made by Stanley Hand Tools. When you pull the tape rule out of Fat Max it can go a good way up into the air without fear of it collapsing to the floor. But the further the tape rule travels from the Fat Max housing, the less support it has and the closer it gets to gravity crashing it to terra firma.

Under normal conditions, the market is the same way. Like Fat Max, it would fall - and sometimes hard. Today's market was no exception: both the ES volume and NYSE volume were dismal. NYSE shares barely crossed the 900-million mark as it fought to stay positive all day. The entire ES range was only 7.40-points and within that 7.40-point range, 70% of the volume traded in an amazingly narrow 5-handle range. When it is this slow the market often rewards our patience the following day with exceptionally good action. Moreover, given the aforementioned information I would expect it to drop. However, the Federal Reserve seems to be giving out Viagra along with its free money so Fat Max may stay up a lot longer. Be prepared at the open.




Previous Day's Trading Room Results:

Trade Date: 4/5/10

E-Mini S&P Trades*
(before fees and commissions):

1) OTF buy @ 10:37am at 1182.00 = +1.25 (1 lot)

2) Algorithm positions (2)

3) "Reading the Tape" positions (7) ...combined Secret's, Algo, & "Reading the Tape" total...-2.25




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