{"id":21052,"date":"2023-06-11T00:51:14","date_gmt":"2023-06-11T04:51:14","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/this-dull-stock-market-is-just-waiting-to-catch-you-napping\/"},"modified":"2023-06-11T00:51:15","modified_gmt":"2023-06-11T04:51:15","slug":"this-dull-stock-market-is-just-waiting-to-catch-you-napping","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=21052","title":{"rendered":"This \u2018dull\u2019 stock market is just waiting to catch you napping"},"content":{"rendered":"
\n

Should you avoid stocks when trading volume falls? This is a timely question, since we\u2019re entering the summer months in which trading volume typically dries up. If price follows volume, as many technicians contend, then the U.S. stock market\u2019s path of least resistance will be down through the end of August.<\/p>\n

I wouldn\u2019t bet on it. I am unable to find any statistically significant relationship between the stock market\u2019s performance and its overall trading volume. While the stock market may nevertheless decline this summer, don\u2019t blame anemic trading volume if it does.<\/p>\n

\n

Consider the chart below, which plots each month\u2019s average trading volume when expressed as a ratio to its trailing 12-month moving average. (This is the proper metric, since trading volume has mushroomed over the past five decades.) Notice the distinct decline over the six months beginning with March; August\u2019s average is 15% below March\u2019s.<\/p>\n

<\/p>\n
<\/p>\n
<\/div>\n<\/figure><\/div>\n

The first clue that there\u2019s no straightforward relationship between trading volume and return is September\u2019s experience. Though the month far and away is the worst performer of the calendar, its average trading volume is as high or higher than five other months.<\/p>\n

This clue is confirmed statistically by measuring the correlation between all months\u2019 trading volume on the one hand, and the stock market\u2019s performance over the subsequent one-, three-, six- and 12 months on the other. None of the correlations is statistically significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine.<\/p>\n

A potential rejoinder that I have received when previously reporting similar results is that higher trading volume is not what\u2019s bullish per se, but the combination of greater volume <\/em><\/strong>and higher price.<\/p>\n

I don\u2019t buy this argument either. I segregated all months over the past five decades into two groups: The first contained all months in which S&P 500
\n SPX,
\n +0.11%<\/bg-quote>
\n trading volume was above average and the stock market rose, and the second contained all months in which volume was above average and the market fell. What I found is summarized in the table below; none of the differences in the table is statistically significant.<\/p>\n\n\n\n\n
\n <\/td>\n\n S&P 500\u2019s average return over subsequent month<\/strong><\/p>\n<\/td>\n\n S&P 500\u2019s average return over subsequent 3 months<\/strong><\/p>\n<\/td>\n\n S&P 500\u2019s average return over subsequent 6 months<\/strong><\/p>\n<\/td>\n<\/tr>\n
\n All months with above-average trading volume in which S&P 500 rose<\/p>\n<\/td>\n\n 0.9%<\/p>\n<\/td>\n\n 2.9%<\/p>\n<\/td>\n\n 5.8%<\/p>\n<\/td>\n<\/tr>\n
\n All months with above-average trading volume in which S&P 500 fell<\/p>\n<\/td>\n\n 1.2%<\/p>\n<\/td>\n\n 2.4%<\/p>\n<\/td>\n\n 5.7%<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

The bottom line? This is a case in which Wall Street\u2019s folk wisdom gets it right. As the old saw goes, don\u2019t sell a dull market short.<\/p>\n

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at <\/em>mark@hulbertratings.com<\/em><\/p>\n

More:<\/strong> As major tech stocks head for the moon, investors drain $77.5 billion from equity funds<\/p>\n

Also read: <\/strong>Don\u2019t\u00a0bet on a \u2018June swoon.\u2019\u00a0Here\u2019s\u00a0what the data show.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Should you avoid stocks when trading volume falls? This is a timely question, since we\u2019re entering the summer months in which trading volume typically dries up. If price follows volume, as many technicians contend, then the U.S. stock market\u2019s path of least resistance will be down through the end of August. I wouldn\u2019t bet on […]<\/p>\n","protected":false},"author":1,"featured_media":21053,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-21052","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nThis \u2018dull\u2019 stock market is just waiting to catch you napping | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Should you avoid stocks when trading volume falls? 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