We have already highlighted the breakout in the PowerShares QQQ Trust Series (symbol: QQQ), and it is has been clear from the market action over the past 3 weeks that nothing else really matters except, well, the market action. As long as prices are going higher all must be right in the world. Right? It must mean something. Why else would prices be breaking out?
But you really don’t have to go too far to see that something is really, really wrong with this rally. It is volume. Where is it? How bad is it? Well, Houston, there is a problem. See figure 1, a weekly chart of the QQQ going back to March, 2009.
Figure 1. QQQ/ weekly
The breakout above the 58.46 key pivot level is noted. Volume bars are in the lower panel. The pink dots on the price bars are those times when the QQQ traded less than 200, 000, 000 shares in a week. Excluding the last 4 weeks in the markets, all but one of those times were holiday weeks like Thanksgiving or Christmas. In other words, the volume that we have seen in the past 3 weeks is on par to holiday trading.
So while we can debate the state of the economy and the importance of valuations, we cannot debate the shrinking and absent volume. It is an un-arguable fact. So is price and right now that is all that matters and all that investors see. But the volume will matter some day. It usually does when you least expect it.