SPY Volume Fades

I find this chart both a ‘worry’ and confusing. Something is wrong and I’m not “getting it”.

SPY 14 Mar 2013 Volume Volatility Momentum

SPY 14 Mar 2013 Volume Volatility Momentum

The main ticker here is the SPY S&P 500 ETF. Notice that at the right edge / end volume is dropping off fast while prices continue to rise. Volatility is quite low as well. Those are nominally indications of a ‘top soon’. Yet “momentum” continues to say ‘be in, we are going up’.

EEM Is the Emerging Markets ETF. It has been “disconnected” from other markets for the last couple of months. The “Emerging Markets” are having some kind of “issues” disjoint from the USA and EU markets. Exactly what? Unclear.

EZU is an ETF that covers the European Monetary Union countries, so a mixed bag of Europe. About a month and a half ago (and about one month after the EEM diverges) it starts to diverge to the flat / downside.

TLT long duration bond fund, is in a slow decline. To be expected when The Fed is raising rates. But The Fed isn’t raising rates. Money is leaving bonds, perhaps because interest rates are so low, and yet it is not going into EU and EEM.

RUT the Russel 2000 small cap ETF, is rising well. Faster than SPY. As it diverges above SPY, that is typically an indication of a market that is a bit ‘toppy’ and likely to have a “correction” soon. Yet up it goes, and up goes SPY, and down goes TLT.

All in all, it just looks like an asset bubble to me. I don’t know exactly why. It just looks like Old Ben Bernanke shoving cash at the world and it has to go somewhere. It is always possible that the volume in SPY is disconnected from the actual volume in the total S&P 500 stocks. There are a great many S&P 500 ‘funds’, so this might simply mean that many “just folks” are leaving bond Mutual Funds and buying S&P 500 or “Small Cap” stock funds; while ‘traders’ who use SPY more are backing away from the table.

Whatever it is, something seems “wrong”, and I can’t quite tease it out. Maybe that’s what it looks like when The Fed is dedicated to keeping things inflated, reality be damned. The way that the rest of world markets are ‘disconnected’ from SPY and RUT says that other economic forces are afoot in the world; but not reflecting in the SPY / RUT movements.

OK, here’s a ‘live chart’ of slightly different things.

SPY vs QQQQ and Japan

SPY vs QQQQ and Japan

Here we see a fairly dramatic disconnect between the Nasdaq 100 (QQQQ) and SPY. Also on this chart is GLD – Gold. It has been trending down for months, but at the end (right side) looks like it is trying to set a floor. Dropping has stopped for a little while.

QQQQ has underperformed SPY during the down cycle from about mid September to mid November, which is normal. Typically small caps and QQQQ swing to the outside of SPY on each direction. But in Mid November when things turn up again, QQQQ lags. Badly. AAPL Apple Computer is a large part of the weighting in QQQQ, so perhaps it is just that Apple has hit some questions about performance ‘going forward’ without Jobs and the Samsung and other folks success in making “good enough” knockoffs of the iPhone. But for whatever reason, we have Yet Another Disconnect.

I added DIA Dow Jones 30 “industrials” (that includes banks and drug companies – go figure). It is looking fairly normal. Typically tracking SPY just a bit off one side or the other.

Then the real ringer, EWJ – Japan. Laying on the floor for years after a major market crash ( from about 44,000 to about 11,000 where it stayed…) it has suddenly started ripping upward now that their central bank has said they are joining the “bugger the currency club”. As this ticker and this chart are in $US, the Yen drop is already adjusted out in the chart. Cash is flooding into Japanese stocks.

The Indicators:

Generally saying to be in SPY (though there may be other better choices). RSI is in a ‘rolling from midline to near 80’ pattern that is seen in steady rising tickers. The general rule for then is to buy when RSI touches the midline. Yet we had a ‘near 80’ moment and “lower highs”, if only slightly lower. That classically means weakening and a correction due. So is The Fed Money Flood propping it up?

MACD has ‘blue on top’ and above zero. It, too, says “be in”.

ADX had inflected downward and briefly we had DMI- the red line on top. That happens at a ‘be out’ time, or also at a ‘buy the dip’ time. About 1 : 3 ratios. So this looked like a ‘top’ but Uncle Ben came on TV and announced free money to continue, and the run inflected back up as “shorts” rapidly covered.

Now we have a bunch of nervous shorts and a bunch of easy money propping up a bubbly ticker. So how’s that going to work out? I don’t know.

In Europe, the Big Wigs are meeting again to address their economic troubles and discuss Spain and Greece. News Flow had France as also flatlined on economic growth. Everyone is agreeing they want ‘growth’. Then they do things that stifle growth.

In the news on CNBC today is news that foreclosures are headed back up in the USA.
This is good how?

In Conclusion

It looks to me like, mostly, this is all just a mater of “Don’t Fight The Fed”. Not here. Not in Japan. They can inflate very large asset bubbles and keep doing it far longer than ‘reasonable’.

Not on these charts: I looked at industrial metals. They are also looking weak. Not a lot of heavy demand for metals from new manufactures.

So how to interpret all this?

The global economy looks dolorant to me. Just painful. There’s lots of ‘happy talk’ and lots of ‘Things are getting better!’… but the consumer is taped out and limping along. China is growing, but a bit under plan. Japan is desperately tying the “poverty through currency destruction” method of improving “competitiveness” and hoping that does something for the economy. The EU is inspecting navel lint, yet again. “This time for sure!”. I don’t expect much change. The Emerging Markets are just sitting around waiting. And the USA? Hanging it all on Uncle Ben Bernanke to blow enough hot air into asset bubbles that we feel better even while we can no longer afford gasoline and food.

Somehow that just doesn’t look like a good reason for thinking the economy will be getting better. Yet stock prices rise. In the USA and in Japan.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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36 Responses to SPY Volume Fades

  1. adolfogiurfa says:

    @E.M. Wrong?, what if the graph reflects money printing? Emerging markets are REAL economies, while the US it is only based on fiat currency and zero interest rates. Of course both differ a lot.

    Our question for you would be: When will this bubble blow up?, is it there something like a critical point to be reached?

  2. Julian Jones says:

    Does not seem to be any overall real wealth creation in the ‘system’ – anywhere. Or even the slightest clue how to restore this.

  3. PhilJourdan says:

    No one’s model compensates for $100b/month from the fed. The volume speaks volumes. Many are afraid that the top is here, and they are just waiting to cash out. But as long as the fed is chasing fewer trades, it will inch up.

  4. E.M.Smith says:


    That article is more along the lines of “change fast” than “blow up”… but I could see either.


    Well, that’s the $Million Question, isn’t it. It is all a bet on how good Mr. Bernanke really is.

    IFF he is as good as he thinks he is, he can ‘engineer’ a ‘soft landing’ from the bubble. At just the right time, when the economy is starting to do fine, slowly raise interest rates off the floor and let the mortgages on their books and the Federal Bonds ‘run off’ over 20+ years. When the US economy ‘kicks in’ and takes off, all the growth will cause large increases in tax revenue and “presto” deficit solved.

    IF he isn’t that good, or the economy does not conform to that model, a bunch of other things start to wear. He can keep buying Treasuries forever, but as the balance sheet balloons to a few $Dozen $Trillion, eventually the IMF will even start to get nervous. If the economy continues to simper along, we end up in EU land. Or like Japan of the “lost generation”. Not particularly bad, just not good either. Too much debt, prosperity running away (but slowly). What happens then depends on what the congress does and the voters.

    In a very worst case, a huge load of debt goes on the books as we continue dumping $Trillions / year of new debt into the world. The Fed gets a ‘smack’ from the IMF, and we go off to Greek Style “Austerity” training…. For what happens then, just look at Greece in the last half dozen years.

    At the core of it all is economic growth. (Real growth of underlaying productivity). Right now we are going for “nominal growth”. Companies showing “higher earnings and higher revenues” based on rising prices and flat or lower volumes sold. The “inflate for growth” can work for a year or two, but then folks catch on… Eventually you need real underlaying growth of actual production. As of now, we don’t really have that (and substantially can’t have it as long as China has a Currency Peg to the $US and our government keep layering on ever more ‘costs’ via regulations, taxes, etc. etc.) So as of now, we’re not lined up for economic ‘growth’ of a real kind. We’re a ‘getting ready to retire consumer boomer’ nation living on a Chinese Credit Card. “Producing” a lot of non-products that don’t get exported. That just is not stable. ( Perhaps we ought to tweak some PC noses by saying “Our welfare state is not sustainable”…)

    So somewhere along the line, that must change. Or we stagnate into Greece.

    My “best guess” is that we’ll keep layering on the debt until it can’t be done any more. In about 4 years we have a new president. That will be a watershed moment. Do they keep Ben, or not? Do they keep the same “plan”, or not? We can likely float another $4 Trillion between now and then. After that?…

    Obamacare is an attempt to suck in new young-folks money to cover old boomers medical costs. It was clear that the ‘retirement load’ could not be covered. The “fix” is saddle younger folks with ‘insurance fees’ that don’t quite look like taxes, but where they pay more than simple insurance would charge, the excess going to ‘buy down’ costs for old folks. It’s a tax (The Supremes even said so…) and a subsidy. Sucking $3,000 or so per person per year out of the non-medical care economy to stuff it into more bed pans and walkers is NOT increasing productivity. It will suck $3k/yr/person out of the basic economy. That will damage growth.

    So one big question is just how much of Obamacare survives and how many more similar programs get added. Each one a drag on productive aspects. As we are already at the stagnation point, that is an issue…

    So “that’s the question”. Just keep watching Ol’ Ben and eventually “we’ll see”.

    Per the stock market in particular: It WILL have a ‘correction’. Just a question of when. My guess is about a month. It will need something of a catalyzing event, but those come by often. Could be as simple as the EU admitting they “have issues”… Eventually the “correction” becomes a Bear Market. That won’t be until The Fed is raising rates, and that doesn’t happen until the economy is growing well. IMHO we’re in the late ’60s / early ’70s again. Instead of a Viet Nam War sucking down too much money, it’s “Entitlements”. Doesn’t matter, going on the credit card and washed into money printing. That market was “not good”. Rising at times, but largely ‘wobbling sideways’. So I don’t see this market doing a Great Crash, but just 20% “wobbles”. Though some of that depends on what congress and all do in the next few years.

    Oh, and per 3rd world economies being ‘real’: Yes, they are. In some ways more real than the “industrialized west” 1st world. That doesn’t change where money flows or why. Take Argentina: I’m sure it has a real economy, but I’d not invest a dime there. Or Venezuela: just a confiscating socialism. Just like the USSR was a ‘real economy’ but hostile to investing. Money flows where it is welcome. That EEM graph just says it isn’t very welcome in the 3rd world right now and is going elsewhere. (Japan from the looks of it).

    So smaller economies and often more risk. With folks not shoving money at them right now. As a ‘side bar’, that also suggests that China is not selling a lot of goods and that ‘resource economies’ are not having demand from China for materials and metals. That all implies their main customers are having issues with buying goods. That leads back to USA and EU malaise.

    So can the rest of the world “decouple” from the EU and USA consumer? Nobody knows.

  5. DirkH says:

    ChiefIO, as I said, my analysis told me “be in Gold from Feb 08th to Oct 04th” (and in stocks the rest of the time).

    I recently found a statistical analysis by Goldman Sachs published on zerohedge where the smart guys found out the same correlation as I.

    What you observe in the EEM is mostly the effect of the SHCOMP, the Shanghai Composite, I guess. They peaked at exactly my switchover date, FEB 08. Which zerohedge has just commented on:

    With regard to the ongoing bubble in Germany and S&P500 I was probably a little early in the switch but history doesn’t repeat, it rhymes, so you never get the optimal moment. I’d rather be out a little early; when this panic begins there will be no buyers and it will go down fast.

  6. DirkH says:

    E.M.Smith says:
    14 March 2013 at 8:01 pm
    “Well, that’s the $Million Question, isn’t it. It is all a bet on how good Mr. Bernanke really is.
    IFF he is as good as he thinks he is, he can ‘engineer’ a ‘soft landing’ from the bubble.”

    No, it’s not in Bernanke’s hands. China imports US inflation through the currency peg and had 71 strikes for wage increases already in January. When unrest in China becomes rampant (see recent utterances of China’s central banker) they will politely ask Bernanke to stop printing. Last time they did was AUG 2011; followed by a swift stock market correction.

  7. DirkH says:

    DirkH says:
    14 March 2013 at 8:11 pm
    “ChiefIO, as I said, my analysis told me “be in GLD from Feb 08th to Oct 04th” (and in stocks the rest of the time).”

    Sorry, to avoid misunderstandings, I should have written, be in Gold, not in GLD – which is the ticker symbol of a specific ETF – I do not want to awaken the impression that I endorse that particular ETF.

  8. DirkH says:

    Petrossa says:
    14 March 2013 at 7:20 pm
    “china is ready to blow up. http://www.telegraph.co.uk/finance/personalfinance/investing/9929490/Investors-in-China-should-be-wary-of-revolution.html

    That’s more of a long term generational shift thing… the immediate happenings are strikes and demonstrations everywhere when food prices go up; much like the Arab Spring, but better contained due to the cellular hierarchy of the Chinese communist party.

  9. Graeme says:

    for what it is worth, I think the concept of “emerging markets” is starting to break up. BRICS are starting to behave as distinct markets with different things happening, which, in fact, they are. But still surprised at the charts.

  10. adolfogiurfa says:

    @E.M.: Solution:
    1) Stop making wars
    2) Stop all Free Trade Agreements
    3) 100% FLAT Custom´s Tariff.

  11. dnelliott1 says:


    I don’t know if you follow Political Calculations but they have been predicting a substantial fall in equities for a while based on their model for dividend futures. Those futures will move to the third quarter next week (the second quarter market ends tomorrow) and they expect a 20% drop (50% if investers mover their horizon to the 4th quarter). Perhaps that’s what you are picking up.

  12. p.g.sharrow says:

    Well, we have stagnation and inflation is starting to bite on the street. Tax increase, food price jump, energy costs are going up fast. Officially little inflation, Those of us that work in the cash market are seeing it in increased costs and dropping income. Big business and retail say that receipts are up but volume is down. Less wealth for more money = INFLATION. In the stock market volume is down and prices are UP! = INFLATION. Soft landing! too late. Bernanke is already too far behind the curve as he tries to hold down interest rates to protect the governments’ ability to service Its’ debt. The price of Gold, silver and oil tell us that the dollar is worth half of its’ present valuation in real stuff. Time to own real stuff, not currency or dollar denominated instruments. Official inflation will be much less than real inflation to reduce government real debt. The stock market is not leading, it is playing catch up. So The Dow should be more up than down but return on investment, less inflation, will lag until real wealth creation picks up. pg

  13. crosspatch says:

    Bank goes to the fed discount window and borrows money at 0.75%. Bank puts the money in the stock market for a week, bids prices up in so doing, gradually cashes out while the next bank is buying, makes 4% on a move in transportations and pays back the fed and pockets the rest. It’s the banks playing from their own accounts. Volume is low because retail investors are not playing. What’s short interest looking like? I would at this point consider dollar cost averaging an SPY short ETF because when it falls, it is going to fall a good bit below where it is today.

  14. crosspatch says:

    Basically, dollar cost averaging shorts right now while the market is ridiculously high is like dollar cost average long SPY when the market is nearing a bottom. It’s the same thing in reverse only you make money when it falls. You have to ask yourself this: Over the course of the next 12 months, do you feel that SPY will touch a value lower than today’s closing. If you feel that it is >50% likely to do so, then you will make money by buying shorts. It’s the same question on the down side. You ask yourself when the market is taking if you believe that the market will be higher in 12 months than it is today and if so, you buy long.

    As you see, I am no day trader. I tend to look at things on a 12 month horizon.

    So I would go SH but stay away from SDS unless I *really* thought it was in “nosebleed” territory.

  15. Petrossa says:

    To my mind China is tethering economically and socially. Economically since it creates huge empty housing projects and other infrastructural projects exactly like the ones that brought Spain to its knees, socially because of the huge gap between the (relatively) few well off and the gigantic sublayer of completely pennyless. Cellular structure or not, nobody thought the wall would fall as quickly as it did, but it did.

    As for medicare, i still can’t get my head around how on earth America thought it would be good idea to implement a healthcare system that is totally spiraled out of control in Europe and is slowly being dismantled due to unsupportable cost overruns. France for example has a structural deficit on healthcare of 8 billion euro’s and a structural deficit of 20 billion total on a budget of 440 billion for total social , which is a QUARTER of the total GDP.

    Same goes for all countries with a healthcare system such America now implements. Huge cost overruns and a severe dressing down of the whole system.

  16. Petrossa says:

    Zerohedge: Marc Faber Rationalizes The Irrational And Fears China’s “Colossal Credit Bubble” http://www.zerohedge.com/news/2013-03-14/marc-faber-rationalizes-irrational-and-fears-chinas-colossal-credit-bubble

  17. DirkH says:

    Petrossa says:
    15 March 2013 at 7:08 am
    “Cellular structure or not, nobody thought the wall would fall as quickly as it did, but it did.”

    :-) Do you really think the USSR and DDR couldn’t have limped along another 10 years? They had Oil, Gas, Gold and slaves… There was no reason at all that it should collapse… except for, it was a staged event – called “Perestroika”… Gorbachev always maintained he was a Leninist.

    Look at who runs Russia now. The KGB. So who do you think was behind the plan.

  18. adolfogiurfa says:

    Got another idea: Such “customs´tariff” I said above could be applied only for AMERICAN BRANDS manufactured outside the US (Apple,etc).

  19. adolfogiurfa says:

    The trouble is when the market falls, and it will to the 5,000 points level (equilibrium level) many retirees won´t survive.

  20. DirkH says:

    adolfogiurfa says:
    15 March 2013 at 12:48 pm
    “Got another idea: Such “customs´tariff” I said above could be applied only for AMERICAN BRANDS manufactured outside the US (Apple,etc).”

    Secret to USA’s rise: protectionism, not free trade
    A protectionist arguing that protectionism is what made America great. (And Japan, and now China)
    30min; The Case Against “Free” Trade , Ian Fletcher

  21. p.g.sharrow says:

    @DirkH; you are quite correct, and tariffs were a major income to the government. But bad for importers and Wall Street profiteers. In far too many cases we allow “Free Trade” into our markets and face high tariffs into markets that we sell to, often the same countries. Lollipops! pg

  22. E.M.Smith says:

    There are so many problems with “free” trade… maybe I ought to make a posting… or several…

    One short / simple one: It simply must be symmetrical to work. The present treaties are often not symmetrical. (As P.G. points out).

    One more complex: It puts pressure on all sorts of national laws to the extent that the two parties have different rules. So things like ‘meat inspection’ laws – what if Argentine canned corned beef has a bit of some other species in it? What is the level of the two countries laws?

    Then there are all the ways it can be manipulated for strategic gain (just watch China) from currency manipulation to predatory marketing practices to…

    And on the other side? “Economies of Scale”. Never mentioning the DIS-economies of scale that set in for many industries…

  23. adolfogiurfa says:

    But what will happen then with “our” BRAVE NEW WORLD ORDER?

  24. Pingback: Bull vs Bear Market | Musings from the Chiefio

  25. Petrossa says:

    We have been gradually disempowered by a corporate state that, as Huxley foresaw, seduced and manipulated us through:

    • Sensual gratification,
    • Cheap mass-produced goods,
    • Boundless credit,
    • Political theater and
    • Amusement.

    While we were entertained,

    • The regulations that once kept predatory corporate power in check were dismantled,
    • The laws that once protected us were rewritten and
    • We were impoverished.

    Now that:

    • Credit is drying up,
    • Good jobs for the working class are gone forever and
    • Mass-produced goods are unaffordable,

    …. we find ourselves transported from “Brave New World” to “1984.”

    The state, crippled by massive deficits, endless war and corporate malfeasance, is clearly sliding toward unavoidable bankruptcy.

    It is time for Big Brother to take over from Huxley’s feelies, the orgy-porgy and the centrifugal bumble-puppy.

    We are transitioning from a society where we are skillfully manipulated by lies and illusions to one where we are overtly controlled.

  26. adolfogiurfa says:

    Time is due….for the Elite to retire…:

  27. adolfogiurfa says:

    This is the BEST KEPT SECRET: The ELITE has no REAL money anymore!

  28. DirkH says:

    adolfogiurfa says:
    16 March 2013 at 7:56 pm
    “This is the BEST KEPT SECRET: The ELITE has no REAL money anymore!”

    Oh come on Adolfo. SOMEONE has the Gold, and that someone is BY DEFINITION the elite.

  29. Petrossa says:

    To my mind there isn’t enough gold around to cover the fiat money volume. And if there is once your start using it the price bottoms. That goes nowhere.

  30. DirkH says:

    Petrossa says:
    17 March 2013 at 9:57 am
    “To my mind there isn’t enough gold around to cover the fiat money volume. ”

    Various estimates have been made, what if existing Gold has to back all money in circulation, what if it has to back all money and credit in circulation , and you end up with fantastic Gold prices of 17k and 30k /ounce or somesuch.

    The amount of Gold mined during human history is rather undisputed; it’s a cube with 70 feet edge length (or somesuch; google for the correct answer). And it doesn’t disappear from circulation; it’s the best-recycled material in the world.

    One German Green MEP (called Giegold) wants to prohibit Gold trading (for Gold mining hurts Gaia) but we could simply go on trading the recycled Gold, could we not? Recycling is green, so recycled Gold is green. (I think Giegold just wanted to announce a first advance into confiscating/devaluing whatever his EU slaves flee into. We will likely see more of that.)

  31. p.g.sharrow says:

    Once gold trading is outlawed, it is a short trip to confiscation. After all if you can’t trade it, what use do you have to own gold. FDR strikes again! Goldfinger should should be imprisoned. pg

  32. DirkH says:

    At the moment I think it’s a test balloon. He’s a nutter; he also says, by outlawing silver trade, evil price spikes that make solarthermal collectors more expensive can be eradicated. Yeah, price controls, that’s what they want anyway, they’re Greens. Of course that would lead to silver scarcity across the entire EU; the death of manufacturing and a black market, but he’s an obvious numpty.

    Will probably go nowhere. But worth to keep watching. You know it’s getting serious when propaganda rags like Der Spiegel start propagating it.

  33. adolfogiurfa says:

    Gold price is manipulated by selling Gold Certificates, which some say have been sold up to a quantity of 120 times the physical gold. However how do you equate this with NGO´s promoting gold mining strikes and/or gold projects to close, or small gold mining prohibition ( as in the case of my country), using as pretext the “environment”. It means that in the near future, those who have bought or are now buying metallic gold, using fiat currency or derivatives, want gold to reach the highest prices when the moment arrives (after the economic collapse) to sell it.

  34. DirkH says:

    Adolfo, in such a scenario the certificates that are not physically backed will fail. Counterparty risk & bankruptcy. That’s why I was picky in what I bought. GLD and SLV did not impress me. In fact I haven’t found a good silver product with physical backing. So I stuck to Gold. As I understand it, Xetra-Gold boasts to have 95% physically in a vault in Hanau and will deliver on request. Which I might just have to fall back on, depending on the evolving situation in the EU.

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