This ‘dull’ stock market is just waiting to catch you napping

Should you avoid stocks when trading volume falls? This is a timely question, since we’re entering the summer months in which trading volume typically dries up. If price follows volume, as many technicians contend, then the U.S. stock market’s path of least resistance will be down through the end of August.

I wouldn’t bet on it. I am unable to find any statistically significant relationship between the stock market’s performance and its overall trading volume. While the stock market may nevertheless decline this summer, don’t blame anemic trading volume if it does.

Consider the chart below, which plots each month’s average trading volume when expressed as a ratio to its trailing 12-month moving average. (This is the proper metric, since trading volume has mushroomed over the past five decades.) Notice the distinct decline over the six months beginning with March; August’s average is 15% below March’s.

The first clue that there’s no straightforward relationship between trading volume and return is September’s experience. Though the month far and away is the worst performer of the calendar, its average trading volume is as high or higher than five other months.

This clue is confirmed statistically by measuring the correlation between all months’ trading volume on the one hand, and the stock market’s performance over the subsequent one-, three-, six- and 12 months on the other. None of the correlations is statistically significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine.

A potential rejoinder that I have received when previously reporting similar results is that higher trading volume is not what’s bullish per se, but the combination of greater volume and higher price.

I don’t buy this argument either. I segregated all months over the past five decades into two groups: The first contained all months in which S&P 500

trading volume was above average and the stock market rose, and the second contained all months in which volume was above average and the market fell. What I found is summarized in the table below; none of the differences in the table is statistically significant.

S&P 500’s average return over subsequent month

S&P 500’s average return over subsequent 3 months

S&P 500’s average return over subsequent 6 months

All months with above-average trading volume in which S&P 500 rose




All months with above-average trading volume in which S&P 500 fell




The bottom line? This is a case in which Wall Street’s folk wisdom gets it right. As the old saw goes, don’t sell a dull market short.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at

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