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Have you been concerned about the low volume ramp up in the stock market lately?

It has been a topic that is highly covered as the market continues to go up each and every day it seems. You can see examples of this worry in articles like this and this.

Technical analysts assume that if there is no volume, then the rally can not be real as there is no one truly buying the rally.

Is this in fact the case?

Well, when you want to provide fear and doom, you can easily compare data points that fit your example in order to make your case. What these authors have done is choose to compare today's volume levels with that of the levels during the most recent crisis. Volume will typically spike in crisis style trading, as can be seen by trading in Cisco (NASDAQ:CSCO) the day after they announced earnings and the stock tanked 14% roughly. The volume that day was 559 million shares traded, while the average daily volume over the past 3 months was 84 million shares. If we use that huge 559 million share day as the standard, then we can say that today, with CSCO up .67% as of this writing, today's (2/14/11) rally is not real, because volume is only 103 million shares, about 80% less. Does that truly tell us anything?

To which I ask, does S&P 500 volume today truly tell us anything when we only compare it to the massive amounts of volume we saw during the most recent crisis?

Volume in the S&P 500 Tracking ETF (NYSEARCA:SPY) has been running in the low 100 million shares per day range so far this year during the melt up.

From the end of 2008 through the market low in the beginning of 2009, shares traded per day in this ETF seems to be in the 300-400 million shares per day range. Now that we have rallied hard, everyone seemingly wants to compare the rally volume of today against the volume during the crash and conclude it is low.

Data mining

All you have to do is go and look at the trading volume pre-crisis to see that the current volume is still historically higherer than how many shares used to trade before the crisis hit. During the rally from 2003 through 2006, it was not uncommon to see daily volume in the 30-50 million shares per day range on SPY. So depending on which time point one wants to use, today's volume data can be spun to try and make any author's point.

As can be seen in this chart the NYSE saw its top 20 volume days all happen during the crisis from 2008 on.

Is this really the new level of true volume in which we want to compare the health of the current rally?

Declining volume during this rally from crisis level highs just reaffirms that the market's nerves have been settling down compared to the crash time frame. It doesn't tell us much more than that in my opinion.

Disclosure: I am long CSCO, SPY.

Additional disclosure: We are long SPY in certain lower sized client accounts. We are short SPY in our hedge fund as a hedge against individual long stock exposure.

Source: Concerned About Low Volume