Here is a worthwhile exercise: Compare the above chart (SPY vs. Five-Day SPY volume) with the chart from my earlier post on volatility. It's a nice illustration of the linkage between volume and volatility: when volume slows down, markets move less. This is because most of the slowdown is caused by the relative absence of large, market-moving participants.
A defining feature of the market rally to this point is that higher prices have attracted less total participation. At some point--the point at which the narrowing participation translates into a narrowed participation of stocks--the rally loses enough steam that its upside potential becomes severely limited. While the Dow stocks are near their bull highs, I just posted to Twitter that new 20-day highs yesterday were only 1117. That is less than half of the levels of new highs seen earlier this month. That has me questioning the bull's legs.
We're coming up to a long holiday weekend, so some tailing off of volume from today forward is expectable. Let's see what the market can give us after that; keep an eye on those 20-day highs and lows. I'll be posting them to Twitter each morning prior to the market open (follow here).
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