Like clockwork, like the swallows returning to Capistrano or Cedric the Entertainer returning to the buffet omelette station – every time the market puts together a good couple of days, the same old guys grouse about the same old thing: lack of volume.
No move higher is ever accepted by this crew because each move higher is weighed and measured based on its volume versus the halcyon days of the 1990’s or the mid-aught’s. Michael Santoli tackles this meme in Barron’s this weekend and ably dismisses it with some key research from Brown Brothers Harriman and my boys at Bespoke:
Deeming rallies as less trustworthy because they’ve come on tepid volume is a common way to find flaws in a gift horse’s mouth. It’s true that share volume has trended steadily lower since the late-2008 and early-2009 liquidation climax, breaking the decades-long trend of expanding trading activity. Yet in a report late last month, Brown Brothers Harriman strategists note that this is merely a partial give-back from the huge tripling of average volume from 2004 to 2009, as cheap high-speed trading and the financial crisis fed hyperactivity. More interestingly, they calculate that the unusual prevalence of very high-priced stocks today is helping to understate share volume. The number of stocks above $100 and the average price of shares in the S&P 500 are both near 22-year highs. Dollar volume, indeed, is up slightly from 2010.
A perfectionist tape reader might wish to see total volume surge, to ratify higher index levels, but this won’t happen in the current market climate. Bespoke Investment Group in March found that without the up days that occurred on below-average volume, stocks would have been down 80%, rather than up 100%, since the market’s March 2009 low.
In other words, “get over it.”