Refuting the Bears

Bears will point to overly bullish sentiment readings and anemic volume as reasons to be wary of “The Big One” or bull market ending. They are absolutely correct regarding the sentiment surveys, but this story has been seen before. And sentiment is almost always much frothier than the high positive readings of today. Sometimes, a correction unfolds while other times the market enters a trading range. And in outlier cases, every once in a long while, stocks begin to melt up to a major peak down the road.

Total stock market volume has become one of the most misunderstood and overused indicators. In the good old days, it was a valuable analytical tool, however, with the proliferation of exchange traded funds (ETFs), high frequency trading, decimalization and off exchange dark pools, New York Stock Exchange volume is no longer accurate in my opinion or largely valuable.

The entire bull market since 2009 has been on a lower and lower reported volume with higher and higher prices. In fact, heavily increased volume has only been seen during pullbacks and corrections since 2009. Technical analysts Edwards and Magee of Technical Analysis of Stock Trends fame will probably roll over in their graves with this comment, but reported volume does not really matter anymore in technical analysis. (That should open the floodgates of emails from the TA crowd.)

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