The Trader Daily

 | Jun 04, 2014 | 7:30 AM EDT
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Oh boy, is this great! -- Flounder from "Animal House"

Anyone carrying an outsized long position in the SPDR S&P 500 Trust (SPY), and not paying too much attention to the intraday movement, probably thinks this is the greatest market ever. But as someone who stares at the screen for a large chunk of each and every trading day, I'm growing increasingly concerned by the lack of volatility, participation and, yes, even the shocking decline in trade volume.

Avoiding the equity markets because of volume alone has proven to be a horrible strategy over the past five years. But consider this. At a time when the SPY is printing all-time highs on a seemingly daily basis, the 20-day average trading volume is just barely more than 82 million shares. For reference purposes, the last time the SPY was averaging around 82 million shares a day on a 20-day rolling basis was in March 2007. Some may be thrilled with this stunning lack of participation, as it suggests there's fuel in reserve in the form of money on the sidelines. I find it concerning. 

Take a look at the daily volume profile for the E-Mini S&P 500 futures contract below. The most concerning aspect to this chart is the anemic volume between 1880 and 1922. Put another way, in the event bids dry up, there would likely be little, if any, cushion between Tuesday's close and a return to 1865-1880.


E-Mini S&P 500 -- Daily Volume Profile
Source: eSignal


Guess what? I got a fever, and the only prescription, is more cowbell! I gotta have more cowbell, baby. -- Christopher Walken from "Saturday Night Live."

So, what happens if the bulls stumble and the E-Mini S&P futures contract takes a tumble?

Perhaps the contract will find support near the top of the trendline it just recently broke through (highlighted in green on the chart above). Consolidating around that trendline would allow the contract to build acceptance and, more importantly, build a base from which to spring higher. That said, until we see a meaningful build-out of volume above 1900, I'd suggest short-term participants keep a sharp eye on the nearest exit.

The bottom line is this. We're trapped in a market that's in dire need of more cowbell.

Additional Notes:

  1. Wednesday's SPY trade plan is nearly identical to the past two sessions. All trading above $191.98 maintains the bulls' advantage, but that advantage begins to weaken with each and every failed attempt to shift value above $192.90. The bottom line is a failed auction (price probes that fail to gain acceptance via time or volume) above $192.90 exposes the market to the potential for a long liquidation break. Any such break would likely result in an immediate slide through $191.98 and a test of last Thursday's $191.75/191.80 volume point of control. Value migration above $192.90 should have day timeframe traders shunning the short side.
  2. General Motors (GM) was a primary focus of Tuesday's Trader Daily, and while I would have liked to see the stock close near the upper end of its session's range, I'm still pleased with the overall action. Suffice to say, I had no clue the auto sales would come in as strong as they did. But as long as no new and painful recall notices are announced, I suspect buyers will have plenty of time to take advantage of any rebound in shares of GM. I am, for the time being, maintaining my stop of a weekly bar close beneath $33.63.

Any trading or volume profile related questions can be posted in the comments section below, e-mailed to me at or posted to my twitter feed @ByrneRWS



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