Volume Has Been Weak In The Rally Off The August Lows

I was just looking at Schwab’s 3rd quarter report and one of things that struck me is how much trading volume on the New York Stock Exchange and the Nasdaq dropped off from August to September. 

Volume was down 27% on the NYSE, 18% on the Nasdaq and 22% combined in September from August (Schwab 3Q Press Release, see pg. 6 “Daily Average Market Share Volume”). 

That’s a huge dropoff in volume.

So people were selling heavily during the selloff but buying more gingerly during the rally.  That tells me that there was more conviction to the selloff than there is to the rally.

If you look at 6 month charts of the NYSE Composite (NYSE Chart) and Nasdaq Composite (Nasdaq Chart) you can really see the drop off in volume.  You have to look closely but when you see it is really quite striking.

Start with the NYSE.  You can see that volume was solidly in the mid 1 billion range from April through late July.  Then, for the selloff from late July to August 16th volume spiked with most days over 2 billion shares trading hands.  But from Monday August 20th to the present, volume drops off and is in the low 1 billion range.

The same thing can be seen on the Nasdaq.  Volume from April through late July tends to be right around 2 billion shares a day.  From late July to August 16th volume spikes up and tends to be in the mid 2 billion range with 5 days over 3 billion.  After that, volume tends to be in the high 1 billion range. 

(That big spike towards the right of the chart is for last Thursday (October 11th) – a day when the market experienced a large reversal to the downside.  That’s the biggest volume day we’ve had on the Nasdaq since Friday August 17th – when the Fed cut the discount rate by 50 basis points).

So volume for the rally is a dramatic fall off from the selloff but it’s also even lower than the volume was from April through late July.  So I think it’s fair to say that this has been a light volume rally.

UPDATE (Thu 10/18, 9:30am PST): In his “Getting Technical” Barron’s colum from yesterday, “A New Knock On Stocks” (subscription required), technical analyst Michael Kahn makes the same point I did in this post noting that on Thursday October 11:

Persistently low volume, which had been a sore spot for the markets for weeks, suddenly picked up as prices were stumbling.  Investors decided together that perhaps selling was a better idea than holding on during the price dip, and such a change should not be ignored.

This chart, which he includes in the article, is very interesting.