April 21, 2014: Thin Tape

The S&P 500 index rose by 7.04 points today to close at 1871.89, or +0.38%. The index is now +1.27% for the 2014 calendar year, but -1.34% below its all-time high achieved on April 4. The 10-year Treasury Note currently yields 2.72%; unchanged on the day. As the headline suggests, equity volume was light today. Several factors, including a return from the holiday weekend, may have contributed to the light volume. Nevertheless, light volume almost always suggests that momentum has stalled–whatever the direction–and a reversal may be in order.

As a proxy for total volume for the S&P 500 index, I analyzed the daily volume transacted on SPY over the course of the last year (i.e. April 22, 2013 – April 21, 2014, non-holiday shortened trading days). Today ranked 15th in lowest volume transacted on SPY over that time period with ~59m shares traded during regular market hours. See graph below. As a reference point, the average daily volume over that time period is about ~97m, or ~64% more than today. As for seasonality, today marked the lowest volume transacted in any of the April dates included in the study and the third lowest volume transacted in 2014 (1/16 & 1/22).


The 5-day forward return for the 14 dates that transacted less volume on SPY over the course of the last year: -0.72%, with 10 of those 14 periods resulting in a loss. It is important to understand that within the context of the situation: when accounting for both magnitude of positive return and lack of volatility, 2013 ranks among the top five of the past 63 years for the S&P 500. And as I’ve noted before, 2013 is no 2014. As a reminder, the two lightest volume days of 2014 (1/16 and 1/22), preceded the Jan/Feb equity decline by four days and one day, respectively.

There is the possibility that this is not an indication that equities will roll over, however, “equity market plateauing” is still in effect and if you have the opportunity to lighten your equity exposure with the S&P 500 up YTD and poor seasonality months (May-Sept) fast approaching, it’s probably a good idea to do so.

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