The Standard and Poors 500 index (SPX) put on a strong bullish trend this week. Opening the week at 5233 and closing today at 5525 for a weekly gain of 5.6%. But the trend in trading volume constitutes the fly in the ointment. Trading volume on the S&P 500 index has been running under the 
50 day moving average (dma) for the past two weeks. That suggests that the large institutional players have not yet been convinced to start a buying spree.

VIX, the volatility index for the S&P 500 options, opened the week at 32.8% and declined steadily to close today at 24.8%.

I track the Russell 2000 index with the IWM ETF, which closed today at 194, nearly unchanged from yesterday’s trading. IWM opened the week at 185, for a gain of nearly five percent for the week. IWM’s trading volume is running well  below average trends, as we have also seen in the S&P 500 and NASDAQ indices.

The NASDAQ Composite index closed today at 17,383, up 217 points or 
+1.3%. NASDAQ opened the week at 16,053, setting a weekly gain of 8.3%. NASDAQ’s trading volume has run well below average this week, with the single exception of Wednesday, the only down day this week.

This week gave us the first signs of a possible recovery, but the key indicator of higher trading volume as the large players move into the market is missing.

The large spike in trading volume on April 7th as the market hit its low of this correction, down 21%, may have been the sign of capitulation. Then trading volume spiked on the large bullish spike on April 9th, hinting that a recovery might be underway. But trading volume has consistently trended below averages since then.
 
I use the Follow Through Day methodology developed by Investors Business Daily to determine when it is safe to begin to re-enter the market after a correction. The first thing we are watching for is a strong bullish day on a broad market index like SPX or NASDAQ. That day would be the Day One of the Follow Through Day methodology. The bullish day of April 9th fits the criteria of Day One. The day count has continued but we have failed to find a Follow Through Day (FTD), a strong bullish trading session on above average trading volume. The purpose of the FTD methodology is to prevent our jumping back into the market just in time for the next leg of the downtrend.

Being largely in cash and waiting to reenter the market can be difficult. Be patient. Perhaps we will see confirmation of the recovery next week.

I am pleased to announce that my blog has been selected for the top 40 options trading blogs by Feed Spot.  I am number 14 of the 40.