Lowered Volume Raises Caution

Volume is the key indicator coupled with price action for the technical analyst. Using the SPYs, as traders refer to the SPDR S&P 500 exchange-traded fund, as a proxy for the market, we see a somewhat cautious picture. As the indexes have rallied over the last few months, the volume in the SPYs has fallen. Ideally, we would see increasing volume as the market moves higher to indicate increased interest as stocks rise, not declining interest.

At the very least this seems to forecast a period consolidation in the equity markets and further rallying is unlikely to extend much longer. Prevailing sentiment seems to have become very bullish yet it looks highly probable that investors will not miss much over the next several months. It looks as though there will be plenty of time to accumulate stocks at these levels before a real, long-term bull market sets in once again.