First part of the short-term rally over the past several days coincided with the July 4 holiday. While market activity demonstrated some big volume days into the June 24 lows, volume since then has been anemic. In fact, last Friday even though the S&P gained 16.48 points with the Dow 30 up 147.29, overall market trading declined about 50% relative to normal values. With the market closed 1 ½ days of the regular five-day week, market activity through last Friday was 45% below normal. Underscoring the poor volume showing over the past two weeks is the performance of Cumulative Volume (CV) in the S&P 500 and the S&P 500 Emini futures contract. While S&P pricing has recovered just under 50% of its losses since May 22, CV in the cash S&P has only come back about 30%. At the same time, on June 24 CV in the S&P Emini declined to a level not seen since the S&P 500 was quoted near 1400 last January. Since that low Emini CV has struggled to recover even 25% of its losses. What those negative divergences suggest to us is that investors were hitting the “Sell” button hard during the recent decline, but have been less inclined to hit the “Buy” button during the recovery.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)
But, and there’s that old caveat, there are a few points in favor of the bullish cohort. First, the larger Intermediate Cycle remains positive. Second, some indicators such as our Daily Ratio for the Call/Pull Dollar Value (CPFL) data series remain in a zone of opportunity to the extent it is “Neutral” (1.03). Similarly, the Most Actives Advance/Decline (MMAD) Daily Ratio is only marginally “Overbought” (1.33). Adding to that slightly positive flavor is the fact that neither CPFL nor MAAD pulled back as far as index pricing during the recent decline, leaving both indicators positioned relatively well relative to recent price and indicator highs.
Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)
Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)