It seems like a day doesn't go by where someone isn't pooh poohing the rally in equities and writing it off as a rally on low volume. This isn't just a recent trend either. It has been going on the entire bull market, which coincidentally has been one of the ten longest in history. If we could give one piece of advice regarding these naysayers, it is to listen to them at your own risk.
In the chart below we calculated the performance of the S&P 500 since March 2009. We also calculated how the index would have performed if we backed out the performance of the index on days when the S&P 500 was up on weaker than average volume. We consider weaker than average volume to be any day where the volume in S&P 500 Spyder ETF (NYSEARCA:SPY) was below its 50-day moving average.
As shown in the chart, the S&P 500 is currently trading at around 1,384, which works out to a gain of 103% from its bear market low on March 9, 2009. Now, if we back out all days where the S&P 500 traded higher on weaker volume, the performance of the S&P 500 since March 9, 2009 would look considerably different. Without these days, the S&P 500 would currently be trading at a level of 128, which would be a decline of 81%! Say what you want about a rally on low volume, but gains are gains no matter how they happen.