Trading volume was low enough Wednesday to indicate a lack of conviction, or conviction that did not spread across enough managers to truly change the narrative.

Just how forward looking are markets supposed to be? How are markets supposed to price in various “certainties” opposed to obvious risks, and over what timeline?

The Dow Jones Industrial Average finally took a powder on Wednesday, but really didn’t go anywhere. The S&P 500 popped to the upside for 27 points, or 0.77%. This used to pass for an impressive day, back when markets were slower, and price discovery a more well-developed process. Now this sort of day makes for a small, though positive candlestick and little else. The Nasdaq indices, both the Composite and the 100, turned in far more impressive performances. Both ran more than 2%, putting a halt to rather nasty looking two-day losing streaks.

While traders may have clearly bought the dip across the realm of what we refer to as “growth” (semiconductors, software and the internet) while allowing the week’s early winners (Energy, Materials, Financials and Transports) to flounder for a day, this action came on dramatically lower trading volume. Not low, holiday style trading volume, but lower trading volume. Low enough to indicate a lack of conviction, or conviction that did not spread across enough managers to truly change the narrative. At least not yet.

For example, at the New York Stock Exchange, declining volume beat advancing volume by roughly 7 to 5, but with winners actually beating losers by a hanging chad or two. Up at the Nasdaq Market Site (Texas bound?), winners did beat losers by less than 4 to 3, while advancing volume beat declining volume by something close to 7 to 4.

Wednesday’s action, to me, shows indecision. How about those small-caps, highly sensitive to prospective economic growth? The Russell 2000 closed flat on the day, very difficult to do in the electronic era, while it’s sibling, the S&P 600 surrendered 0.66%. Remember, on my screen any move less than half of one percent remains orange, while anything greater turns either green or red. Odd to see two indices that essentially track the same class of security shaded differently…CLICK for complete article