I do not claim to be an avid student of market volume, and most market technicians would refrain from calling me an expert on the subject. However, I have enough knowledge on the matter to notice a few things once in a while. With this disclosure out of the way, I will now tell you what I have been observing.
There are myriad volume measurements and statistics. There is the NYSE volume, NASDAQ volume, and let’s not forget BATS volume. For those of you not familiar with BATS, it is the third largest US exchange. BATS captured a 22.0% market share of all US equity trades in the month of August, so it is a name you should become familiar with. There are also statistics on up volume, down volume, and unchanged volume for each exchange. Many traders rely on volume indicators such as “on-balance volume” to guide their trading.
Today, I want to focus on the volume of a single security – the SPDR S&P 500 ETF (SPY). It is the most heavily traded equity on the planet. It is just one of the more than 1,760 ETFs that are listed for trading in the US, yet it captured 35.2% of all ETF dollar volume in August. SPY trading averaged $35 billion per day last month, more than seven times the daily amount of PowerShares QQQ (QQQ), the second most traded equity security. Meanwhile, Apple (AAPL), the most actively traded stock by dollar volume, averaged just $8.6 billion per day.
Given the importance of SPY as a security, the importance of its volume is elevated, in my opinion. Yesterday, many financial commentators were attempting to ascribe enormous bullish action to the +2.5% surge in the S&P 500 index, accompanied by an 11.6% bump in NYSE volume and a 12.1% rise in NASDAQ volume. However, I saw something different. The volume of SPY did not increase. It went the other direction and did so in an unambiguous way. The volume of SPY declined more than 43% versus the previous day. Additionally, that 2.5% rise in price came on the lowest volume in the past fourteen trading days. Not since August 18, before the market went into its recent tailspin, has SPY traded on lower volume than it did yesterday.
Given the fact that most of the recent down days for SPY have occurred on increasing volume while up days have seen declining volume, I’m not ready to get bullish on SPY just yet. Additionally, since I believe SPY is one of the most important securities, I’m going to remain cautious on the overall market for the time being.
Historically, Utilities, Consumer Staples, and Health Care have been the defensive sectors. This trio often finds itself at or near the top of relative strength rankings during times of market turmoil or when the economy is in recession. Given this background, it may come as a surprise that these three sectors are not dominating the rankings today. After controlling the top for the past three weeks, Utilities is all the way down in sixth place today. Health Care has ruled the rankings for most of 2015, but it started to slide six weeks ago and is in seventh place for a second week. Consumer Staples tried to live up to its defensive label and climbed a spot higher in today’s rankings. However, it was at the top four weeks ago and has not managed to get any higher than third since then. Do not read too much into the drop of the defensive sectors. At this point it is probably best to take the momentum scores at face value – very red and deeply negative.
Consumer Discretionary is the new leader, as retailers and homebuilders held up fairly well during the recent volatility and are driving the sector higher. Real Estate dropped from fifth to eighth. This, coupled with the fall of Utilities, suggests a surprising shift away from dividend payers. Materials and Energy have now extended their occupancy of the basement for ten consecutive weeks. The relative order of the duo has remained constant through this period with Energy on the bottom.
All style categories “improved” their momentum scores over the past week, although it may not be obvious when looking at all of the red pixels. The leadership has been consistent with Large-Cap Growth sitting on the top each of the past six weeks. Adding to the consistency, Mid-Cap Growth has landed in second place for a fourth week, and Mid-Cap Blend now counts three weeks of being third. There is essentially a four-way tie for fourth place. Within this group, Micro-Cap and Small-Cap Growth climbed higher as Large-Cap Blend and Mega-Cap sank lower. Mid-Cap Value fell three places, and Small-Cap Value and Large-Cap Value are the lowest ranked again. All three Value categories are now at the bottom, which tends to reinforce the move away from dividend payers that was observed in the sector rankings.
Not much has changed in the global landscape. The US is on top for a second week, which means its recent declines have been less severe than the other global categories. The Eurozone owned the top spot for five of the six weeks prior to the US ascent, and it has held second place the past two weeks. World Equity and EAFE both moved a notch higher as Japan fell two places to fifth. The UK and Canada swapped places, with the UK gaining the upper hand this week. These top seven categories are all in steep negative trends, and it gets worse for the four categories at the bottom. There is a noticeable increase in the magnitude of the negative momentum scores for the categories ranked below Canada. Emerging Markets and Pacific ex-Japan are the best of this bottom four as Latin America and China remain on the absolute bottom. China’s economy, and its impact on the rest of the world, continue to provide fodder for the financial news cycle. China’s growth engine is slowing down, and speculation is rampant as to how deep its economic tentacles reach into various parts of the globe.