There was an awful lot of chatter last week about the low volume in the market. And it was low; Friday was the lowest of the year.
Low volume on its own doesn't bother me, because for most of my career we have had high volume on declines and low volume on rallies. Fear, which can create panic selling, is a more powerful emotion than greed.
If we look at the 20-day moving average of New York Stock Exchange volume (blue line) we can see that each spike up in volume has come after a decline in the market, with June of last year the most obvious on this chart. On a side note, if I had gone back to March of 2020, you'd see a massive spike in the 20-day moving average of volume.
Let's note a few things. First, we do tend to get highs in the market when volume is low. Just look at late August/early September to see that: Volume had gotten to the lowest on this chart as the S&P was soaring. Next, notice how high the moving average got in March. That tells me there was an awful lot of selling that took place in the month of March. We can't see it much on the chart of the S&P, but as we all know we surely saw it on the chart of small caps. It was the most selling (highest volume) since June of last year. I say that was likely all the speculation being wrung out of the market. You know, all those special purposed acquisition companies and electric vehicles and pot and space stocks.
The question is when is low too low? Because that's when we're near a top. For me, that is an issue, because there rarely seems to be a level that says "enough." But what we do know, is that there has been a decline in volume that has preceded every correction we've had in the last year.
Now we're back to a market that is short-term overbought, but not yet intermediate-term overbought. We've also got a market that got pretty darn narrow last week. The best day of breadth for last week, a week where the S&P rallied 3% was positive 850. Compare that to the prior week when we got oversold heading into early April and we had not one, but two, days with breadth over positive 1,800. Or you can just notice that the Russell 2000 was down on the week.
The number of stocks making new highs is downright pathetic for a new high in the S&P. The NYSE had fewer new highs on Friday than it did on Monday and Monday was still fewer than a few weeks ago. Nasdaq had 100 fewer new highs Friday than Monday.
Sentiment is stretched by most, not all measures. The Investors Intelligence bulls are 61%. The American Association of Individual Investors bulls are 57%. And even the National Association of Active Investment Managers folks have increased their exposure to 90 from 52.
Then there is the Daily Sentiment Index (DSI) which tagged 90 for the S&P Friday. It tagged 91 for Nasdaq and the VIX got to 10. Readings over 90 or under 10 are extreme for this indicator.
I think this week could be choppy because the intermediate term is not yet overbought but I still think the latter part of April sees a pullback again.