Is the Bull Run Pulling Up Lame? Overextended Rally Seen Ripe for Downturn; Look Out 6547.05, Says Mr. Roth Indicators of market health, including trading volume, buying demand and trading by companies and corporate insiders, are beginning to flash yellow or red. People also are beginning to question whether the economic fundamentals are strong enough to justify continued gains. (...) Pessimists think the damage could be greater, and the real pessimists worry that stocks could fall to new lows by autumn. They say stocks just aren't behaving as they have at the start of past bull markets. Consider trading volume. Average daily volume for all New York Stock Exchange stocks hit a record of 7.21 billion shares in March, as the rally began and heavy buying sent stocks sharply higher. That slipped to 6.42 billion in April, and so far this month, it is running at 5.14 billion, putting it well below the 2009 average of 6.15 billion a day. "A new bull market is one when investors are prepared to commit larger and larger amounts of new money to equities," says Paul Desmond, president of Lowry Research in North Palm Beach, Fla. "What we have seen here is a very consistent drop in total volume going back to early April." Mr. Desmond says his data, going back to the 1930s, don't show any new bull market with such a weak volume trend, which leads him to believe that this rally won't become a lasting bull market. Other data reinforce that concern. The number of stocks joining in the gains has begun to shrink, which doesn't typically happen this soon in a real bull market. And Mr. Desmond's measure of stock demand, based on the amount of trading volume and price change occurring on stock gains, indicates that demand has been fading, another negative signal. "Investors are risking smaller and smaller amounts of capital and that is a bad sign," Mr. Desmond says.
Indicators of market health, including trading volume, buying demand and trading by companies and corporate insiders, are beginning to flash yellow or red. People also are beginning to question whether the economic fundamentals are strong enough to justify continued gains.
(...)
Pessimists think the damage could be greater, and the real pessimists worry that stocks could fall to new lows by autumn. They say stocks just aren't behaving as they have at the start of past bull markets.
Consider trading volume. Average daily volume for all New York Stock Exchange stocks hit a record of 7.21 billion shares in March, as the rally began and heavy buying sent stocks sharply higher. That slipped to 6.42 billion in April, and so far this month, it is running at 5.14 billion, putting it well below the 2009 average of 6.15 billion a day.
"A new bull market is one when investors are prepared to commit larger and larger amounts of new money to equities," says Paul Desmond, president of Lowry Research in North Palm Beach, Fla. "What we have seen here is a very consistent drop in total volume going back to early April."
Mr. Desmond says his data, going back to the 1930s, don't show any new bull market with such a weak volume trend, which leads him to believe that this rally won't become a lasting bull market.
Other data reinforce that concern. The number of stocks joining in the gains has begun to shrink, which doesn't typically happen this soon in a real bull market. And Mr. Desmond's measure of stock demand, based on the amount of trading volume and price change occurring on stock gains, indicates that demand has been fading, another negative signal.
"Investors are risking smaller and smaller amounts of capital and that is a bad sign," Mr. Desmond says.
The weakening volumes is a damning sign, I'd say. In the long run, we're all dead. John Maynard Keynes
is it fatted, oops bloated cow, or golden calf? ~Government budget deficits are not nearly as dangerous as the deficits we have created in vital and complex natural systems.~ Naomi Klein.
