If it’s a Bull Market, Where’s the Volume?

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On Monday, the S&P 500 posted its sixth consecutive gain with a rally of 0.1%. As a result, it recorded new post-March highs on both an intra-day and closing basis, However, declining stocks outnumbered gainers by a small margin while up/down volume was positive by a 5:4 ratio. Total volume was higher than Thursday’s short session. The daily Coppock Curve has a bullish bias for 16 of the 24 S&P industry groups.

The S&P 500 continues to struggle higher. “Struggle” is the operative word. Despite the fact that it is on a six-day winning streak and has broken out to new highs, the corrective nature of the pattern remains in force. Moreover, even with the breakout, the index has yet to decisively pull away from the November-December trading range.

S&P 500 with Volume (21-dma)

Most important of all, volume continues to shrink. In a true bull market move, we would expect to see a notable expansion in volume, especially in the initial “liftoff” phase and/or in the third wave. As the nearby chart shows, that expansion has been noticeably absent right from the beginning in March. Indeed, the S&P’s low in March aligns nicely with a peak in volume. So while the trend is up, its corrective structure and lack of volume suggests that we view the recent strength with a healthy dose of caution.

That said, support at 1087-1084 remains intact, so the post-November uptrend continues to receive the benefit of the doubt. Moreover – and as mentioned in prior posts – the November-December trading range is best counted as an Elliott Wave triangle or some other continuation pattern within a larger uptrend. Thus, even though the index has finally established a solid foothold in the important 1121-1156 range, higher highs seem likely. Within the range, resistance is indicated near 1137. A breakout through 1156 would allow for further strength toward 1170.

Nearby support is at 1094-1093. As mentioned in our recent STR, the early November low is as important to our count as is the July low. Thus, it appears prudent to raise our tactical support benchmark to the S&P 500’s October low at 1029, from July’s 869 low.