Vapor Volume Resulting In Major Swings Indicates Evaporating Market Liquidity

We keep harping on the lack of volume to the upside, and inversely the massive flushes on every down draft. This is due to basically no real money buying, but very real money selling on any appropriate catalysts. So who does the buying? And how does vapor volume manage to push the market by nearly 1%, usually higher? Simple - there is no liquidity left at the margin for the entire market! Market neutrals lost the war... And the results will be forthcoming soon. Some terrific insight from Art Cashin.

S&P Again Stalls At Resistance - For the second day in a row, the bulls tried to punch through the S&P resistance at 1102/1106.  Monday, the attempt flamed out at 1102.96.  Yesterday, they made it all the way to 1103.69.  That failure was followed by a rather rapid evaporation of the rally with all three indices closing down on the day.

The indecisiveness in the stock market has led to relative illiquidity.  With more players on the sidelines, market moves can be disproportionate to the volume involved.

Tuesday morning, about 10:00 a.m., the Dow had a sudden sharp 70 point swing.  It was over in a minute or two.  Floor traders were astounded to notice that the 70 point reversal saw volume jump only 15 million shares.  That move, on such small volume, was stunning and indicates that liquidity is well below the norm.

While there was some news and data yesterday, the markets seemed self-absorbed and somewhat hypochondriacal.  It kept checking its own pulse and temperature to see if it felt well enough to rally through the resistance.

Around 1:00, they made their first real try but stopped on a dime.  They pulled back, rested and tried to regroup.  Around 2:00, they failed again at virtually the same spot.  Having failed twice, they just gave up.

Another problem for the bulls was that the volume ticked up slightly as prices fell.  Low volume rallies that devolve into higher volume selloffs are not a good sign.  That made the close seem a bit gloomier.