Refuting the bears

Bears are pointing to overly bullish sentiment readings and anemic volume as reasons to be wary of the end of the bull market. But there's more to the story.
JUN 24, 2014
(Part 3 in a 3-part series. Read Part 1 and Part 2.) Stock market bears are pointing to overly bullish sentiment readings and anemic volume as reasons to be wary of “The Big One” or the end of the bull market. They are absolutely correct regarding the sentiment surveys, but we've seen this story before. (See Morningstar's Russ Kinnel talk about investing in a 'meh' environment) And sentiment is almost always much frothier than the high positive readings of today. Sometimes, a correction unfolds while other times the market enters a trading range. And in outlier cases, every once in a long while, stocks begin to melt up to a major peak. Total stock market volume has become one of the most misunderstood and overused indicators. In the good old days, it was a valuable analytical tool but with the proliferation of exchange-traded funds, high-frequency trading, decimalization and off-exchange dark pools, New York Stock Exchange volume is no longer accurate or very valuable. The entire bull market since 2009 has been on a lower and lower reported volume with higher and higher prices. In fact, over the last five years, heavily increased volume has only been seen during pullbacks and corrections. Technical analysts Edwards and Magee of Technical Analysis of Stock Trends fame will probably roll over in their graves with this comment, but reported volume does not really matter anymore in technical analysis. (That should open the floodgates of e-mails from the TA crowd.) Paul Schatz is president of Heritage Capital

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