Without volume, market action shows us primarily what computer trading is doing -- not actual human beings. The majority of daily volume comes from so-called program trading, whether it's sophisticated high-frequency algorithms executing trades in milliseconds or just indexed mutual funds and exchange-traded funds seeking to track a benchmark.
Without volume, the market is said to lack conviction, that oh-so-human trait that actually creates a definitive trend.
"Machines Talking to One Another"
"There was so much jubilation when the S&P 500 pierced the 1,130 level that it obscured a whole bunch of internals saying that, sorry, no, this was not a real breakout but actually another failed test of the interim highs," David Rosenberg, chief economist and strategist at Gluskin Sheff, told clients in a note Thursday. "'Volume never ratified the 'breakout.'"
Without volume, market action just reflects the "machines talking to one another," says Jason Weisberg, managing director at Seaport Securities. As he's been telling DailyFinance since March, the market needs to sustain a rally over several trading days on strong volume before he'll have faith that stocks can break out of their range-bound rut.
So, of course, volume is thin. A broad swath of investors doesn't like stocks at theses levels, and that's a helpful way to think of the technical concept of resistance. When the price of anything (in this case equities) gets too high, potential customers resist paying for it.
Until the fundamentals of this market improve, range-bound trading appears here to stay.