Monday was the lowest volume of the year, so naturally I am asked about the low volume. Let me say I think as we head into the weekend, it will get lower.
For years I have said that low volume is what we see on rallies and high volume is what we see on declines. That is still my belief. However, it's when volume gets too low -- extreme -- that it becomes a problem. And it must be quite low for an extended period of time.
If we use the 20-day moving average of New York Stock Exchange volume for the last five years, we can see that prior to 2020, we were in a range. When we got to approximately 4 billion shares traded over the prior month (20-days in the market is just about one month of trading) we were near a low in the market.
On the chart below point A was the low, just before the 2016 election. Point B was the 2018 "volmageddon" low and Point C was the December 2018 low. It is never as clear cut when it comes to low volume readings being near highs, but one thing those three instances had was that volume had slowed to a crawl just before those sell offs in the market.
Since the March 2020 melt down and resurgence, the range has moved up. Now the lowest reading for the 20-day moving average has been around 4 billion shares. Should we see a breach of 4 billion shares on the 20-day moving average, I will consider it heading in the direction of an extreme. What level makes it extreme? That is unclear, but typically it begins to head upward before the market heads downward.
The red lines on the chart show you the lows in volume just prior to those three declines. Friday's volume was 3.9 billion shares. Monday's was 3.7 billion. So you can see that we are quite likely to see this moving average head down in the next week or so. Points D and E on the chart were just prior to the September high and the October high. I am watching closely since so far May has seen a low, as well.
Away from that, we got the growth stocks to rally. So naturally breadth on the New York Stock Exchange was mediocre at best and on Nasdaq it was downright pathetic. Nasdaq rallied nearly 200 points and upside volume was 52% of the total volume. But that's the either/or market hard at work; if tech/growth rallies, it does so at the expense of everything else.
Nasdaq's Overbought/Oversold Oscillator has finally crossed over the zero-line. I expect it will get to a short-term overbought reading by the end of this week.
There is one other indicator to keep an eye on. The 10-day moving average of the put/call ratio did tick down on Monday. I said last week I expect to see it fall this week, but I am surprised it hasn't ticked down more by now. We have not seen a put/call ratio reading under .80 since May 3.
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