Update on Low Market Volume

Includes: DIA, QQQ, SPY
by: David I. Templeton, CFA
One of my posts last week noted the lack of volume in the recent market pullback. This low volume was also present in today's market decline. The market seems to be finding support at the 1,266 area after closing at this level on August 7th, 19th and today. One negative indicator is the MACD faster moving average (12-days) crossed below the slower (26-day) moving average. Will higher volume occur on an up or down day?

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S&P 500 chart August25, 2008
When looking at the percentage of stocks trading above their 50 and 200 day moving averages, the market seems out of sync with the level of the moving average percentages.

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S&P 500 percentage of stocks trading above 50 day moving average
S&P 500 percentage of stocks trading above 150 day moving average
The question is whether the market responds like it did in late 2006 or late 2007. Given the lower level of the market and the potential end to the election uncertainty, I expect a market reaction like that in 2006. One big wild card is the slowing global economy and the stress still present in the fixed income markets. The economic outlook could improve with stabilization of commodity prices and the positive impact this would have on consumer spending.