If Volume Is the Weapon of the Bull, Then....

04-10-2011 • OfTwoMinds.com/blog

This year's dramatic rise in stocks coincides with a collapse in volume. If volume is the weapon of the Bull, and volume is declining, then what we have here is either: 1. a market that lacks buying volume and is thus held aloft by opaque interventions 2. a new kind of Bull market which rises magically despite declining participation by investors. Magic is of course not unknown in economics or finance; stripped of academic mumbo-jumbo, economic growth arises, we are told, from the emergence of "animal spirits." Financial speculation, we are told, is akin to dancing to the music (sounds fun!), with the only advice being to keep dancing until the music stops. This chart is saying the Bull Market is bogus. Many excellent technicians see no real evidence of weakness, and those analysts with a fundamental perspective see the Federal Reserve's $6-$8 billion in near-daily injections of POMO cash and rising corporate profits as reasons for the market to loft ever higher. The value of U.S. stock markets is around $14 trillion, roughly the same as the national GDP of around $14.5 trillion (if official stats are to be believed). Can $6 billion in daily cash buying really sustain a $14 trillion market? That is asking a lot of an essentially trivial sum of money.