QQQ Low Volume Warns of A Coming Correction in Stocks

QQQ Volume is Relatively Low Indicating Probability of  Correction Soon

The chart above is a daily QQQ volume chart with a moving average and standard deviation band.  In this case we see the moving average is about as low as it has been in the last 2 years.  The previous times it hit this low level were right near intermediate term peaks in stocks.  Also note that the moving average is low relative to the standard deviation bands.

This would imply that the power of this rally is fading.  I believe that CoT data suggests a non sustainable rally here as well.  I am not saying that stocks could not move to new highs, but given some of the factors I have noted recently, it appears that at least a sizable short term move to the downside will occur before prices could reach to new highs.


Pete

Low Volume in QQQ Suggests Rally Will Falter

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The chart above is the volume of QQQ with some moving averages and standard deviation bands.  The 8 day average of the volume is the lowest since August 2013, at which point it went very slightly lower.  The next lowest reading in between came at the beginning of Sept 2014 as stocks pushed towards the highs and then corrected sharply into October 2014.

In general waning volume on a rally is a bearish leading indicator meaning that it will occur in advance of a top in price.  So my interpretation here is that near multi year lows in volume as the other indexes are trying to make breakouts of the December highs (and in the NYSE highs back in July 2014), is probably not a good sign for bulls.

I have analyzed current Commitment of Traders data for the major stock indexes, and a major selling surge came in in mid December.  There is not the same level of extreme in selling currently.  That could be interpreted as a bearish divergence, but it also could be interpreted as the smart money just not being extreme, and so there may be room to move higher before they create another extreme selling effort.

Shorter term measures of the total put/call volume ratio and equity put/call volume ratio came towards the lower end of their recent range this past week.  And so in conjunction with market volume waning, it appears that some complacency is setting in for this rally.

Given stocks are at new all time highs, a trailing stop behind the market may be the way to proceed from here, but another possibility is to exit part of long positions at these levels, with the idea to consider rebuying on the next correction.

Pete

Lowest Volume in SPY in Over 2 Years - More Topping Signs

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While it could be argued that we are in the summer doldrums and that is why volume is low, I don't know that it can rationalize the fact that SPY traded its lowest volume INCLUDING holiday trade, in over 2 years, except for Christmas Eve 2013.  Very interesting.  Seems like the market is just whispering...a couple very narrow range doji candlesticks right at new all time highs, and with the Dow 30 joining in today with another new all time high. 

This does not seem to me a good sign for bullish market action going forward.  Be warned here - in my opinion - that this market continues to display sign after sign of topping with divergences in every category of market analysis that I track - price, volume, put/call volume, volatility, breath.

This weekend's CoT report will be of interest in that both the S&P 500 and Dow 30 made new highs by today, and Friday's report will reflect data through today/Tuesday.  That report has not flagged any major smart money selling here recently, so it will be interesting to see how they respond to the new highs.  Of note though, as the lats bull market topped, the typical contrary nature of the CoT positions was not consistent, and so it would only be a possible confirming indicator to me of what is already obvious from my standpoint.....that stocks are likely very near to a significant high here.

PS - the chart above was posted shortly after close, and after volume numbers were finalized the reading changed.  The chart above showed that volume was the lowest in over 2 years, but the final number is a bit higher than Christmas eve 2013.