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Precipitously low market volume a sign that a correction is imminent

May 5, 2010

Since the 16th of April, the Dow has pulled back several times however on 3 occasions the volume swelled to over 7 billion shares. April 16, volume swelled to 9.1 billion, April 27, volume surged to 8.31 billion and on May 4th volume surged to 7.4 billion.  What do all these dates have in common? The markets sold off on each one of these dates.  What is even more important is that not once during the 37 new highs the Dow put in did the volume ever make it even to the 7 billion mark. This is an astounding development, for it clearly indicates that long term players are not participating in this rally.  Low volume indicates low market participation and vice versa. Thus a market that puts in new highs on low volume is setting itself up for a very big fall as there are fewer and fewer players to support it.  

VIX appears to have put in a bottom and is ready to trend much higher. An upward trending VIX means markets will trend in the opposite direction.

Copper a leading economic indicator has already topped and the Baltic Dry index put in top last November.  Put call ratios are indicating that the masses are also extremely bullish.

Individuals willing to take on a bit of risk can short the market via the following ETF’s DOG and QID.