On the bullish side, you have strategists like Jim O’Neill who believe low volume means there is money on the sidelines just waiting to jump in and bid up stocks.
However, sceptics like Bruce Krasting argue that low volume combined with a low VIX is a recipe for a crash.
In a new note to clients, RBC Capital Market’s technical analyst Robert Sluymer acknowledges that trading volume has been down. But he points out that on a dollar basis, volume has been flat since 2009.
From Sluymer’s note:
In February, when volumes continued to decline, a client remarked that while volume had fallen, it was roughly the same amount of dollar volume trading, given that the indexes had climbed substantially. Good point. The chart on p. 1 contrasts the rise in the Wilshire 5000 with the declining total U.S. volumes. While not a perfect measure of dollar volume, multiplying these two series illustrates that effectively the total dollar volume trading on average each year has been effectively flat since 2009.
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