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The market stabilized yesterday. Volume was dreadfully low, which I would normally view as a positive. Typically, you would want to see volume dry up during pullbacks in bullish trends. But it's earnings season and volume shouldn't be low.
Earnings season, especially first-quarter earnings season, is often a high volume period. When stocks report earnings, investors are revaluing them. The new data causes people to either sell out of positions or add more money to current holdings.
In either outcome, volume is often higher than average.
Investors rush to the trading floor to execute new orders based on new data. Very often a stock will experience its four highest volume days of the year after a quarterly earnings announcement.
Volume has been on a decline all month when it should be rising. The last big volume day was March 16. It has been declining ever since, although it has picked up (slightly) during market sell-offs.
For now, let's chalk the low volume up as another weird thing about this rally. The bulls remain in control. But as I mentioned yesterday stocks appear to be retreating following bullish earnings announcements. This morning Bank of America (NYSE: BAC) and Morgan Stanley (NYSE: MS) both reported numbers that beat the consensus. You may recall, however, that Wells Fargo (NYSE: WFC) and JPMorgan Chase (NYSE: JPM) declined following their beats.
Should that behavior continue we could be looking at a multi-month (perhaps for the rest 2012) top in the making. Bears need to respect the 1355 support zone while the bulls need to jump back above 1401 in order to build momentum that can take SPX to another new rally high.