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Markets In the Summer Doldrums

We refer to the summer months as the doldrums due to the anemic volume and uninspired trading on Wall Street.

 

By Jeffrey Hirsch

 

Looking at the average daily trading volume of SPDR S&P 500 (NYSEARCA:SPY) on Yahoo! Finance (the new layout and format is going to take time to get accustomed too), it is just under 100 million shares per day over the past three months. SPY volume recently spiked as high as 333 million shares on June 24, 2016, Brexit sell-off, to a recent low of just a little over 54 million this past Tuesday. If volatility remains subdued, average daily volume is likely to continue to trend lower as the calendar heads toward August.

We refer to the summer months as the doldrums due to the anemic volume and uninspired trading on Wall Street. The individual trader, if they are looking to sell a stock, is generally met with disinterest from The Street. It becomes difficult to sell a stock at a good price. That is also why many summer rallies tend to be short lived and are quickly followed by a pullback or correction.

Below we have plotted the one-year seasonal volume patterns since 1965 for the NYSE and 1978 for NASDAQ (NYSEARCA:QQQ) against the annual average daily volume moving average for 2016 so far. The typical summer lull is highlighted in yellow. Note the spike in volume that occurred in late June as a result of the Brexit vote sell-off. Prior to then volume had been slowly, but steadily declining since late April. As of last Friday, volume has already sunk to pre-Brexit spike levels.

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An atypical surge in volume this summer, especially accompanied by outsized gains, would be an encouraging sign that the bull market will continue. However, should traders lose their conviction and participate in the annual summer exodus from The Street, a market pullback or correction could quickly unfold.