[Unlocked] Declining Volume Has Disappeared
An Excerpt from the Note Sent on July 6th
Below is an excerpt of one of the Spotlight Charts shared on July 6th as well as chart from the Breadth Note Sent on July 1st. Both charts look at the lack of stock trading lower with major volume. This is a sign of excessive bullish sentiment and can result in short-term pullbacks in the S&P 500.
Declining Volume Has Disappeared (July 6th)
Last week in the Breadth Update, I shared a chart of Declining Volume and noting when it rises, that’s often-marked short-term peaks in the Index. Since then, declining volume has continued even lower. Falling to the lowest level since 2020. This is telling us that hardly any stocks are moving lower and those that are just aren’t seeing much trading volume and could be a sign that sentiment is getting too bullish. Looking in the past when the ratio of declining volume vs. advancing volume has gotten to current levels, each time saw a minor pullback. The last instances were a very fast -7.5% drop in September 2020, a -5% pullback in 2019, and -5% in 2016.
Lack of Downside Volume (July 1st)
With the strength in the large cap equity market, few stocks are trading on heavy downside volume. This has pushed the 1-month average of declining volume to under less than 42%. When this figure begins to move back up (above 42%) we’ve seen several short-term pullbacks (red dots).
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