4/7/11 'Low volume doesn't cancel buy signal'/ Cleared for takeoff

http://tinyurl.com/3lrrvun

At long last, a common sense take on the low volumes behind the 2-year rally. And why it's not necessarily a bearish sign. From a sentiment angle, I think we're good for a move to 1400.

There are also a lot of potential equity-market participants, such as retail and other long-term, buy-and-hold-type investors, who remain skeptical after two crashes in 10 years. “There’s still a thought that the market is pretty treacherous,” said Hinsdale Associates director of investments Andrew Fitzpatrick. It’s one thing to be burned once, but twice?

In addition, there are a lot of fundamental headwinds to keep investors cautious, such as such as surging oil prices, the nuclear crisis in Japan, European sovereign-debt concerns, and the big one: uncertainty surrounding what might happen if or when the Federal Reserve ends the latest round of monetary stimulus, as scheduled in June.

Basically, volumes are low now because of fear and skepticism, not because bulls have had their fill of stocks. In that case, the lack of participation shouldn’t detract from the Dow Theory’s buy signal.

If volume had increased steadily after the bull market began in March 2009, and again emerged in July 2010, then declining volumes at a new high would be a warning signal. “If [investors] were all in, and volumes were low, then there would be a concern,” Kleintop said. But the “inordinate amount of cash on the sidelines” suggests that’s just not the case.