[Russ Winter]

“Volume precedes prices. You are seeing much lower volume. That tells you that prices are going to go much lower, much lower than most people think possible and very few people have projected.” -Joseph GranvilleAnd now for something completely different. In 2011 the stock market experienced 70 days of more than 0.5% declines. So far thus year, zero.  Tuesday’s session saw virtually no trading, 60% below the already low average.   Right now I see the only aspect the market exhibits is randomness around little volume and trading. As far market conditions, this commentary from David Rosenberg says it all:

• “Most measures of market sentiment are back to where they were last May just when the S&P 500 was peaking.
• Short interest has dried up to three year lows.
• The VIX closed the week below 20 for the first time since last July.
• As Mike Santoli points out in Barron’s, volume in leveraged ETF’s versus bearish ones has risen to levels that in the past touched off interim market pullbacks.
• Credit market indicators have lagged well behind the improvement in equity performance.
• The S&P 500 is three standard deviation points above its 20-day moving average.
• Again, as Barron’s points out, the ratio of the 15-day volume puts on the S&P 100 Index to bullish call volume hit 2-to-1 last week – this happened in the February 2007, February 2011 and April 2011.”

Pretzal Logic chimes in: bearish indicators

1) VIX:TNX closed outside its lower Bollinger band, while COMPQ closed above its upper band.
2) Nasdaq volume as a ratio to NYSE volume reached unusual highs.
3) The NYA has formed (and continued) a negative price divergence with the SPX.
4) Daily RSI is in the upper “bear-market bounce, heavily over-bought” zone.
5) Daily MACD remains on the cusp of forming a bearish divergence.
6) My 12-year study on investor sentiment suggests that the current and severe lack of bearish investors is virtually always consistent with a top of some kind.
7) SPY has 4 unfilled gaps below the current market, all within the prior 100 trading days.  History suggests that these gaps will be filled 90% of the time.

Instead of spiking and retreating as in 2011, the McClellan Oscillator has stayed at high level for over a month.  I am not so sure the prior pattern of spike to 250 is even necessary as the issue now is more about extreme complacency.From European Crisis Deepens-Simon Johnson

In the event of default (i) any non-official bond holder is junior to all official creditors and (ii) the issuer reserves the right to change law as needed to negate any rights of the nonofficial bond holder.

We should not underestimate the damage these steps have inflicted on Europe’s €8.4 trillion sovereign bond markets. For example, the Italian government has issued bonds with a face value of over €1.6 trillion. The groups holding these bonds are banks, pension funds, insurance companies, and Italian households. These investors bought them as safe, low-return instruments that could be used to hedge liabilities and provide for future income needs. It was once hard to imagine these could ever be restructured or default.

Now, however, it is clear they are not safe. They have default risk, and their ultimate value is subject to the political constraint and subjective decisions by a collective of individuals in the Italian government and society, the ECB, the European Union, and the International Monetary Fund (IMF). An investor buying an Italian bond today needs to forecast an immediate, complex process that has been evolving in unpredictable ways. Investors naturally want a high return in order to bear these risks.

Investors must also weigh carefully the costs and benefits to them of official intervention. Each time official creditors provide loans or buy bonds, the nonofficial holders become more subordinated, because official creditors including the IMF, ECB, and now the European Union continue to claim preferential status.

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