When it comes to analyzing markets, volume is one of the forgotten indicators. In general - and this is a generalization to the nth degree - volume rises as markets move up and declines as markets fall. Why? We tend to get interested in markets only as prices improve, reinforcing our natural optimism and excitement. Volume reaches peaks at the extremes, at market bottoms and market tops. These are known as blow offs; points in time that are dominated by events that generate excess excitement in one direction, only to quickly reverse. Like I said, these are not precise rules, many examples can be found to contradict them.

So what has been occurring volume-wise these last few months? Check out this chart of the Dow Jones Industrial Average and the volumes associated with it. The volume line is the year over year change in volume as a percentage.

What you'll see on this chart is that volume has been steadily decreasing since the beginning of the War Rally, the move up in price on the right side of the chart beginning last March. Not only is it decreasing, volume is now at its most anemic point since the beginning of the 1990's. This is very unusual behaviour. Remember that on rallies, volume usually increases. Well on this one, the opposite is occurring. What is happening? It would appear that the market is rising without a corresponding increase in activity. In order for a true bull market to ignite, volume should be strong, demonstrating a real commitment on the part of investors to equities. This rally is more tepid, luke warm, and fails to inspire confidence.