As we wind down the dog days of summer, the usual complaints are heard daily about markets:  volatility is low, the markets don't move, volume is pathetic, the action is too thin to trade.  Well, I can certainly understand the concern, and with a VIX settling in just under 14% for nearly two months, that is indicative of a sleepy market.  We are trained to believe the markets are vulnerable to downside when participants show complacency, and that has certainly been the case since the 'Brexit' vote.

What has been truly remarkable about the market rising to new heights is the level of volume, which can be characterized as extremely weak.  Just last week, the Nasdaq 100 clocked in at the lowest volume day ever for a full session, just under 10 million shares traded.  The average level of volume for the biggest indices (SPX, Russell 2K and Dow Industrials has been declining steadily, the 50 day moving average for instance has not had an uptick in several months, and only when the market was declining.

So, the conventional wisdom is that as markets make new highs, more money should be coming in, right?  Not necessarily, and frankly if that were the case it would scare me right out of the markets.  We like to see what is known as a 'wall of worry', healthy skepticism that keeps most out of the markets.  If everyone was 'all in', there would be nothing left but sellers, and prices would go down as supply started to exceed demand.  The common belief is 'money chases money', and that is mostly correct.  However, when the 'last group' of buyers steps in then what happens next - a world of hurt.

We like to see high volume surges after big price drops, where players have basically given up.

Back in 1998/99 there was a persistent bid in the markets and into the year 2000.  The Nasdaq was up a staggering 80% over a four month period as money was coming into the markets from all corners of the earth.  Nobody wanted to be left at the altar, but when it was all over there was blood everywhere.  Not many were left standing, and that included short sellers who got blitzed when the markets ran them over (most of them) before the crash ensued.

Lastly, the markets are set up to make most everyone look foolish (or in a bad light).  Following the crowd may feel good at times but it is not how the money is made (generally).  If we find big volume at the highs then watch out below, because a fall is going to happen - fast.