Stocks rallied Monday, but sharply lighter volume took the juice out of the session's gains.
The Nasdaq picked up 0.9%. The S&P 500 climbed 1.1%, the Dow industrials 1%. The small-cap S&P 600 also tacked on 1%. But volume receded 19% on the Nasdaq and nearly 30% on the NYSE.
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Two factors weighed on Monday's volume. The lack of option-fueled trading certainly played a part. Big investors also were reluctant to trade heavily ahead of the two-day Federal Open Market Committee meeting that begins Tuesday.
Still, Monday's trading level came in below Thursday's tally, and was the second-lowest total since the last week of 2006, when traders stayed home for the holidays.
Volume is one of the best technical indicators around because it shows the actual level of activity and/or enthusiasm. The reasoning is simple: if people are really excited about buying something more people will participate in the rally. If people aren't excited, they won't.
One of the oldest and most reliable technical indicators out there is a rally on continually decreasing volume. A rally on decreasing volume indicates people are less and less excited about an issue and the therefore the price is about to drop.
Food for thought.
