I started the day wondering if the market was going to put in a double top. The jury is still out but so far the market is behaving normally. I never expect the market to sail smoothly through a prior resistance area. Volume was light today. One concern is the bond market. Bonds have been in a decline since a July 25 top. Money out of bonds may have been powering the current rally with the follow-through day on 7/26. Bonds may have staged a bottom with the last four days up. Today showed a large move up in the 30-year treasuries. If this continues I would expect a tough period ahead for equities.
Yesterday was a distribution day but the distribution count did not change. This is because the highs on the NASDAQ yesterday went more than 6% above the close of the 8/2/12 distribution day removing that day from the count. I wonder if it is optimum to not count a distribution day because of an intraday high that was itself a reversal day. Moving 6% above a distribution day is a good thing but a reversal day is a bad thing. Should a bad event ever cause a positive result? Something to study someday.
The exposure count remains at +6 with the Power Trend switch on. The Power Trend will keep us in the market even if we enter a stormy period. There are only two ways to turn off the Power Trend: close below the 50-day or experience 4 distribution/stall day events within an 8-day trailing window. Unless some serious volatility shows up both of these events seem to be in the distant future.
The NYSE volume is running exceptionally light. I suspect when August completes that you will have to go back to May 1998 to find lighter volume in any single month. I find this remarkable given the underlying causes of secular volume growth: 1) High Frequeceny Trading, 2) Popularity of ETFs which can cause double counting when an ETF share is bought and the manager then buying the underlying shares. Mutual fund participation has been part of the secular growth in volume but I suspect now part of the decline. Harry S Dent probably would have predicted the mutual fund effect because of the aging of the baby boomer generation moving them into retirement. I wondered what volume looked like during the last 18 year secular consolidation (1966-1982). The chart below shows what I found.
There might have been a dry up in volume in 1974 but this offers little hope that the light volume we are seeing today implies anything about the end of the current secular period. It obvious is in the prior period that volume got a lot higher moving into the end of the consolidation and beyond. I would expect volume expansion to come in our future also before the side ways period ends. To power this kind of volume expansion probably requires a different economical enviornment and maybe the post baby boomers to to move into their prime earnings period in their life. Harry Dent's demographic research says that begins to happen around 2024-2026 or so.
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