Where is the Volume?
What makes you more money? A 9% rally on low volume or a 9% rally on big volume?
That's the question we need to ask ourselves. I've been hearing a lot of complaints about the lower volume rally that we have seen over the last week. And it's true. Volume has been light. Much much lighter than what we saw during the crash:
So what do we make of it? We're told that volume should increase in the direction of the underlying trend. This is stock trading 101 right? Well how come during this 100% stock market rally over the last two years, the opposite has been true? Sustained rallies have come on lighter volume and sell-offs end on much bigger volume:
The turning points during this cyclical bull market have come on higher than normal volume. All of these volume spikes that I circled above have been buying opportunities. There are some others I could point out, but I circled some of the obvious ones. I think it's important to keep in mind what sort of patterns we're seeing out there these days.
Not making a call here for stocks to go higher or lower. In fact we hit our initial price targets yesterday based on the Fibonacci retracements that we discussed last week. We'll be watching the bond market as our tell this week for further decision making in equities. I think we'll be in more of a stock-pickers market for the next few months where we'll have some winners and some losers. Pairs trades in this sort of environment are probably our best bet where we can become a little bit more market neutral. "Pick your spots" is what coaches used to tell me growing up as a ball player. Same thing here I suppose.
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