Why Volume Matters - The UnBearable Lightness Of Bear Market Rallies

Tyler Durden's picture


It is often said a picture paints a thousand words; in the case of this chart, it paints more. Day in and day out, there is one inimitable indicator that if looked at will tell you everything you need to know about the day's market performance - volume. The last few weeks - post-Draghi, Post-Knight, stunned many with just how low volume can get; and implicitly just how much the battle-bots remain in charge. Clarifying this picture of low volume strength and high volume weakness, John Lohman has created the following chart - summarized thus: YTD, low volume days have seen the S&P 500 rise around 15% in aggregate, while high volume days have seen the S&P lose around 5% in aggregate. The linear nature of the low-volume move is simply remarkable - perhaps September will bring some real volume back, and now we know what that means for market direction.



Charts: Bloomberg

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Fri, 08/24/2012 - 09:55 | 2733550 Todd Horlbeck
Todd Horlbeck's picture

What is amazing is the lack of discounting the market is doing

Fri, 08/24/2012 - 10:01 | 2733584 veyron
veyron's picture

Honestly this is a good thing.  If there was heavy volume on up days, one could conclude that more money is entering the markets.  The fact that it isn't happening means more people are getting out of the equities scam ...

Fri, 08/24/2012 - 10:09 | 2733626 MillionDollarBonus_
MillionDollarBonus_'s picture

Well volume is of no concern to smart traders and investors who are profiting from the global recovery. Those who had the courage to buy the S&P this summer have been rewarded handsomely. The doomer day traders that shorted the S&P, bought puts or the VIX, have been completely destroyed.

Fri, 08/24/2012 - 10:10 | 2733636 Cognitive Dissonance
Cognitive Dissonance's picture

Heck of a job MDB.

Fri, 08/24/2012 - 14:20 | 2733710 Precious
Precious's picture

Tastes great, less filling.

Fri, 08/24/2012 - 10:22 | 2733718 SafelyGraze
SafelyGraze's picture

What is amazing is the lack of discounting the algos are doing

Fri, 08/24/2012 - 10:12 | 2733643 LongSoupLine
LongSoupLine's picture

like Facebook, right MDB?

Fri, 08/24/2012 - 10:16 | 2733669 Hayek FA
Hayek FA's picture

Smart traders or investors are not playing this market long or short, just you and the Fed by proxy.

Fri, 08/24/2012 - 10:17 | 2733680 _ConanTheLibert...
_ConanTheLibertarian_'s picture

I have not been destroyed. My medium term short went positive for me recently, now minus again but will stay short. The whole fucking world is currently going off the cliff. Speak you later you moron.

Fri, 08/24/2012 - 12:54 | 2734261 redstuffer
redstuffer's picture

Smart money is not as short as you would like to believe

Fri, 08/24/2012 - 10:17 | 2733681 OldE_Ant
OldE_Ant's picture

Nope, no concern to IDIOTS, with MONEY TO BURN.  Not one care in the world those people have throwing money around these casinos (ahem) markets like it's candy to be given to children or HFT algo bots with infinitely deep pay you tuesday for stocks today pockets.

Not one concern in the world.  Tell me again why the governments are training for full fledged disasters, buying plastic coffins like they are going out of style, and why police are stepping up their stop and pop activities again and why oh why is Ben still buying everything that isn't nailed down.

Nah, no concerns here.  Move along to your cells ahem pens ahem offices sheeple.  Make sure to drool over the new grizzled/boney supermodel hires before you check in.

Baaaaaahhh. Drool.  Baaaaah.

End of Line

Fri, 08/24/2012 - 10:20 | 2733695 Schmuck Raker
Schmuck Raker's picture

No mention of Libertarians?


Fri, 08/24/2012 - 10:24 | 2733728 tocointhephrase
tocointhephrase's picture


Fri, 08/24/2012 - 10:24 | 2733724 Keegan11
Keegan11's picture

MDB -- Oh toolbag!!

Fri, 08/24/2012 - 10:26 | 2733737 Keegan11
Keegan11's picture

MDB -- You just getting in this morning? Those late nights and back to the desk with a red face and a egg and cheese sandy are making you're brains into mush. Global recovery, eh? Righto

Fri, 08/24/2012 - 10:36 | 2733776 jcia
jcia's picture

Thanks for the laugh. Had to login to upvote you!

Keep buying those FB shares for the legendary wealth you are going to give to your grandchildren.

Fri, 08/24/2012 - 10:58 | 2733864 azzhatter
azzhatter's picture

Thanks MDB, I've been following your trading advice for a while now. I've been dollar cost averaging FB and several others. The kids will need shoes soon and hopefully I have enough left for some cheap sneakers

Fri, 08/24/2012 - 11:01 | 2733871 tocointhephrase
tocointhephrase's picture

Follow that advise and you will be lucky to afford a pair of flipflops

Fri, 08/24/2012 - 11:19 | 2733947 southerncomfort
southerncomfort's picture

have to agree w/ mdb.  until people start posting "i have ceased to use toilet paper" or "i do not eat any longer" or "driving? not me dammit" or "teeth? just say no to brushing"...i'll probably stay invested in holdings that will (in fact) be bot, sold & consumed until that end of days (fable) occurs. 

Fri, 08/24/2012 - 11:51 | 2734068 One World Mafia
One World Mafia's picture

Just wait till after the Furor is reelected (with the aid of electronic voting).

Fri, 08/24/2012 - 15:05 | 2734851 InjuredThales
InjuredThales's picture

MDB is the only troll on this site I actually enjoy. 

Much better than Max Fischer or Robotrader!

Fri, 08/24/2012 - 15:05 | 2734855 PAWNMAN
PAWNMAN's picture

Just like how much money everyone made in the previous stock market bubble, and the housing bubble. You look like a genius on the way up and a monkey when it crashes on your head. I guess your hoping you'll be able to time the exit perfectly before the next train wreck. Good luck my friend!

Fri, 08/24/2012 - 10:45 | 2733797 franzpick
franzpick's picture

Staying with these low volume markets for the past 2 years has you up 20-40%.  The old adage, never sell a quiet market after a rise, may still be in effect. Big volume up here at these tops, to some, will be a sell sign.

Fri, 08/24/2012 - 10:55 | 2733851 azzhatter
azzhatter's picture

Good title from a great book and movie. The Unbearable lightness of being by Milan Kundera

Fri, 08/24/2012 - 09:56 | 2733556 ekm
ekm's picture

I'm still baffled.

Why is i so difficult for people to understand? Expensive tomatos, people buy few tomators. Cheap tomatos, people buy a lot of tomatos. Close to rotten tomatos, people buy1 ton for a dollar.

That's the same for stocks. Expensive stocks, low volume or zero volume (primary dealer to primary dealer). Cheap stocks (S&P at 600 or 400), boy you are going to see the volume explose.

Conclusion: Do they they want volume or do they want NYSE to go out of business? Solution: S&P at 600-800, you get volume.

Why is this so difficult to understand?

Fri, 08/24/2012 - 10:01 | 2733589 LongSoupLine
LongSoupLine's picture

oh boy, let's get as basic as possible so you understand...


Crooked fucking piece of shit market that has repeatedly fleeced retail investors and taxpayers of their wealth = low volume. period.

There will be a quiz later.

Fri, 08/24/2012 - 11:14 | 2733926 Spaceman Spiff
Spaceman Spiff's picture

Are you sure? The pretty financial tv people with a world of experience at their young ages as journalists said hft provides liquidity. Hft probably has electrolytes as well.

Fri, 08/24/2012 - 15:12 | 2734888 ekm
ekm's picture

Thx for the remarks. See my comment to Diogenes.

Fri, 08/24/2012 - 10:41 | 2733795 Gadocat99
Gadocat99's picture

Wow.  Where to start? Market volume is not based on stock price.  In fact, when stocks are very overvalued the market should have high volumes.  Low volumes are signals that folks don't want to trade -- either because they want to hold their portfolio or they don't want to get into the market.  In this case, everyone has left the market due to pervasive fraud and theft.

Fri, 08/24/2012 - 15:13 | 2734886 ekm
ekm's picture

Thx for the remarks. See my comment to Diogenes above.

Fri, 08/24/2012 - 10:41 | 2733798 Diogenes
Diogenes's picture

Investments are the only market where everyone flocks to buy when prices are high and runs away when you hold a bargain sale.

Fri, 08/24/2012 - 15:14 | 2734881 ekm
ekm's picture

Correct...but only when people have money to invest. It's called a Pyramid Scheme or more recently a Madoff Scheme. It works as long as people keep putting their money back in until..................they run out of money and the pyramid collapses.

Now people are withdrawing money hence your interpretation does not hold, IMO.

Fri, 08/24/2012 - 15:25 | 2734952 InjuredThales
InjuredThales's picture

+1 for name.

Diogenes was walking backwards across the Agora, affecting a studied indifference to all who laughed at him. Finally, when he had collected a large following he stopped and announced, "You are laughing at me walking just a little distance backwards while you all lead your entire lives arse-about."

"And what's more," he asked, "can you change your way of living as easily as this?" Whereupon, he turned on his heel and walked off in normal fashion.

Fri, 08/24/2012 - 15:38 | 2735027 ekm
ekm's picture

I am impressed.

Fri, 08/24/2012 - 09:57 | 2733559 Cognitive Dissonance
Cognitive Dissonance's picture

When the cat volume is away the mice HFT/PPT play.

Fri, 08/24/2012 - 10:13 | 2733649 disabledvet
disabledvet's picture

My personal view is that the problem of low volume..and yes it is a problem...has much more to do with modern media...ahem..."methods"...than anything to do with the basic architecture of the market itself. I do find it interesting that no one in a leadership position at say the NYSE or NASDAQ is demanding the Government start clamping down on the "hacking attacking" that Mark Zuckerberg celebrated on the day FB went public. Quite honestly unless and until the authorities are demanded to clamp down on this and all the illegal "hacker shops" that exist everywhere in the City I really fail to see volume do anything but keep going down. Who knows...maybe even a publicly traded company will say something as well.

Fri, 08/24/2012 - 10:25 | 2733730 Hype Alert
Hype Alert's picture

I agree, but with so much of the volume being computer/HFT trades, what's really going on in the market is completely distorted.  Basically painting a picture of direction that isn't real.  Throw in Dark Pools (basically a second set of books) and you have a display, being what we see, that has nothing to do with what is really happening.

Fri, 08/24/2012 - 10:00 | 2733581 piliage
piliage's picture

It's the same four computers, buying and selling to each other over and over and over and over with free ZIRP money.

Ah yes, behold, the perfect market.

Fri, 08/24/2012 - 10:13 | 2733652 Thomas
Thomas's picture

They can't make money from each other without there being a loser. That is why they need retail, and that is why they are lamenting the absence of retail in the market. There is simply no sucker to scalp. They have all been scalped. Wall Street is like the rabbits introduced to an island: they have eaten every last leaf of vegetaion.

Fri, 08/24/2012 - 10:59 | 2733866 piliage
piliage's picture

They can sell to each other until the debt bubble burts with higher and higher leverage ratios though to make up for the lack of muppets, which I suspect is what many might be doing.

The odd short clearance against the hedge funds is where a lot of the liquidity may be coming from too, given the horific performance by a lot of the smart money this year.


Fri, 08/24/2012 - 10:01 | 2733586 the 300000000th...
the 300000000th percent's picture

liquidate, liquidate, liquidate, its time to get out of your positions. Soros is doing it, Buffet is doing it, take a hint. Volume will tick up on sellers. Buy physical hold physical. There arent any killings to be made in 2013 anyway. 

Fri, 08/24/2012 - 10:05 | 2733606 buzzsaw99
buzzsaw99's picture

there is no spoon (market)

Fri, 08/24/2012 - 10:08 | 2733628 Dr. Engali
Dr. Engali's picture

My suspicion is if Ben doesn't get to printing soon there is going to be some real volume and it's not going to be accumulation.

Fri, 08/24/2012 - 10:17 | 2733645 Cognitive Dissonance
Cognitive Dissonance's picture

Jackson Hole in 5..........4..........3.........

There's going to be major disappointment if Ben doesn't deliver the goods.

<Come on Ben. Just a peek. Unbutton your blouse a little at least. Jezzz!>

Fri, 08/24/2012 - 10:14 | 2733659 buzzsaw99
buzzsaw99's picture

i suspect they are planning to sell the news either way it goes

Fri, 08/24/2012 - 10:18 | 2733683 Dr. Engali
Dr. Engali's picture

That depends on the size of the print. I suspect Ben probably knows that too so he needs to surprise the market by printing more than the market expects.

Fri, 08/24/2012 - 10:20 | 2733701 buzzsaw99
buzzsaw99's picture

if he does that two months before the election romney will be p.o.ed

Fri, 08/24/2012 - 10:26 | 2733734 Cognitive Dissonance
Cognitive Dissonance's picture

Romney says he wants to fire Ben's ass. If that is the case (admittedly a real question mark) Ben might just do everything he could to avoid someone who wants his ass ejected from his seat.

Fri, 08/24/2012 - 10:28 | 2733746 buzzsaw99
buzzsaw99's picture

the bernank is a political football, how funny!

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