That’s the title of this blog, because it is important to read the markets. It is the closest we have to a real-time voice of the economy. Although very imperfect, it is still the closest we have.
For example, if the market rises for four straight days, then we’re happy about that. But, if the trading volume is increasing each day as well, then we know more investors are returning to the market, which is very bullish. The relationship between the closing price of the market and the trading volume is an important indicator.
For eight straight days now, the Dow has alternated between up and down. Trading volume on Friday was 3.2 billion shares of stock (actually 3,207,341,094 shares to be exact). Average trading volume is about 5 billion shares daily. That is 36% below average. For the whole second quarter, we’ve been running about 30% below last year.
So, what is the collective wisdom of investors telling us? That they don’t have a clue what the market is doing!
When the market is driven by the economy or when the market is driven by corporate earnings, investors find it easier to make investment decisions than when the market is driven by headlines, like now. This is important to understand, because I suspect the market is spring-loaded for another bull run, if we can get back to the basics of economics and earnings.
In the first quarter of this year, we saw the market spring ahead of the economy, because it is so anxious to roar again. After all, it has been four years since the market last peaked. A dysfunctional Washington may yet produce a dysfunctional Wall Street.
Forget the dogs, will someone please let the bulls out?