Declining Volume

Although not illustrated particularly well in the above chart, it would seem that volume has declined on the S&P 500 and the other major indicies since the initial spike in volatility around the period of the flash crash. As I mentioned in a previous post, the market is trading in an apathetic fashion with little conviction in either direction. Volume has been very low in general, declining with each successive leg down since the end of April. Consequently, I'm not convinced we're going directly into the abyss as the daily headlines would suggest. I think, September will be an interesting month for the market.

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Thanks,

Shawn

Mid-Term Election Year

This year is a much talked about mid-term election year. As we all know, North American equity markets usually post a major multiyear low during the later part of a mid-term election year.




Have we seen the lows for the year or will the market move down sharply through September as it does in a typical mid-term election year? It really could go either way at this point. From a technical perspective, this year has played out in classic fashion. Support has held well on the DOW at ~10 000, dipping slightly below 9700 in July. If this year follows the mid-term election pattern, we could see the DOW make a low at ~9000, at which there is strong technical support. So was the July low, the multiyear low for the markets or are we going to fall into correction again and make new lows through September?

The problem with this mid-term election year is that it is the primary focus of the media more so than any other mid-term election year. Every stock analyst is referring to this year as a mid-term election year and drawing attention to the fact that a correction could be around the corner. Pessimism is elevated, the VIX is elevated but wavering, the Put/Call ratio is elevated, 10-year treasury yeilds are at record lows, bonds are overbought and there is still a ton of cash sitting on the sidelines.

The real question is whether or not there are enough sellers left to push the market to a new low.