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Volume Analysis

|Includes: IWM, SPDR S&P 500 Trust ETF (SPY)

Past week was interesting in the sense that it brought back some activity - we saw an increase in trading volume. This increase in volume is most notable on the Russell 2000 index.

When we look at the S&P 500 volume chart (see below), an increase in volume is not evident - the average volume is basically unchanged. This is because on Monday-Tuesday and Friday we had very low volume on this index. Therefore, together with strong increase in volume on Wednesday-Thursday, the average volume resulted in little change only.

The DJI and Nasdaq 100 volume pictures are similar to the S&P 500. On the other hand, when we look at the Russell 2000 index, we see substantial change in volume - see the chart below. The average volume on the Russell 2000 index raised to the level last seen in November of 2017. We know that strong increase in volume is caused by institutional traders who trade in big volumes. When we see big volume we know that the "Big Boys" are in the game. In November of 2017, the strong volume surge during the Russell 2000 price advance indicated that the institutional traders were buying small cap stocks heavily - they were at the bottom of the recent up-trend. Now, we see those "Big Boys" are back in the market. The difference is that now, the Russell 2000 index is moving mostly side-way and the "Big Boys" are not buying (otherwise the Russell 2000 would rally up) - they are selling (distributing) small cap stocks.

We may discuss and speculate around motivations behind the actions of the institutional money ("Big Guys") or we may simply track their actions through volume. Right now, we see they are selling small cap stocks (Russell 2000 index). This sentiment does not spread over the S&P 500, DJI and Nasdaq 100. When the investors are not confident in a future of the market's trend, at first, they usually sell their risky assets (small cap stocks) as a simple precaution. That is exactly what is going on. It does not mean that the market will dive into a correction. However, this is a sign that we start to see the Bearish mood among some of the institutional investors. At this moment, the Russell 2000 is still at the top. If it starts to decline, it will confirm our assumption about bearish sentiment among institutional traders. Then we may check whether small cap bearish fever may spread over other indexes.

The volatility is at very low level. Therefore, even we see some decline on the Russell 2000 index, even it spreads to other indexes, at this point of time, we cannot expect any strong decline. Furthermore, the recent volume-price behavior suggest side-way and modestly negative trading for the coming week which goes along with previously published Breadth analysis (https://seekingalpha.com/p/2yfe8)

Charts Courtesy of https://www.marketvolume.com/stocks/

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.