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Why Volume Matters

As FBN Securities' Jeremy Klein notes, daily S&P 500 E-Mini volumes have climbed to an average of roughly 2.1MM contracts over the past week. This could be a problem...

Rising volumes are often associated with market pullbacks

When this metric < 2MM, S&P futures have climbed 496 points; when > 2MM, the E-Minis have dropped 355 points in 2014

Above this benchmark, the blue chip index has generated negative daily returns 77.8% of the time year-to-date

And to add some spice to that rising volume concern, small capitalization shares have not underperformed by such a wide margin since 2007

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Klein concludes:

  • I switched to a bearish outlook from September 10 with an expectation that small capitalization shares will underperform
  • A neutral fundamental environment belies the optimism exhibited by the bulls especially with more restrictive monetary policy on the horizon
  • Earnings expectations are far too effusive given the pace of the recovery 
  • Weakness overseas and a rising dollar limits growth for large multinational corporations