A Word on this 'Volume Doesn't Matter' Nonsense

 | May 08, 2013 | 6:30 AM EDT
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Let's talk about volume. We all know how light it has been -- and it hasn't mattered at all. Many folks think the market entered this period of light volume right at or near the 2009 low, but I disagree. Just over a year ago, the 20-day moving average of NYSE volume was above 5 billion shares, and I do not consider that "light."

Volume -- NYSE

Yes, volume has been trending down since 2009, but in my view it has only been truly light for the past year, when it has barely been able to get above 4 billion shares. For me, that's been the biggest change. So folks can believe volume has been light since 2009 all they want, but the facts do not support this.

Still, in the past few days I have heard many dismiss volume as the indices have continually surged to higher highs. Consider how many times you have heard, "Volume doesn't matter" or, "But volume has been light since the 2009 low." This one's my favorite: "Price doesn't care about volume; it goes up anyway." It'll probably be any day now that we'll hear, "It's different this time." Or maybe I missed that one?

Speaking of volume, please take a look at the McClellan Summation Index, using volume, for the Nasdaq. Despite a surge in the index, the rise in the Summation Index has been puny. Now, I admit the reading is still rising upward, but that is also a lower high. I cannot imagine what price the Nasdaq would have to reach in order for the indicator to make a higher high.

McClellan Summation Index

If we move over to the logic department, we have another curiosity. If housing is doing so wonderfully, and if the homebuilders are headed ever upward, then why has lumber gone down since mid-March?


I am certain there is a plausible explanation about the lumber chart relative to the homebuilders. For instance, maybe folks are building homes out of stones and bricks, and not wood. Also, I admit there is support for lumber right here around this 340 area, so it ought to bounce. But if I showed you that chart, would you expect the SPDR S&P Homebuilders (XHB) to be at new highs?


Finally, I have noted recently that the equity put-call ratio has been in the 50s several times of late -- which has taken down 10-day moving average. In fact, the put-call is now hovering just above 60%. A break under that level would be the first such breach since the highs of the spring of 2012 and, before that, the spring and summer of 2011.

Put-Call Ratio -- 10-Day Moving Average

But I am certain it won't matter to the market, just like the light volume doesn't matter. It surely is different this time!


Overbought/Oversold Oscillator -- NYSE

Overbought/Oversold Oscillator -- Nasdaq

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