Case of "Diminishing" Volume in Stock Market

There's a considerable chatter about "declining" volume in the stock market. It is often cited as a reason for the imminent market correction to the downside, because "volume is drying up".

I had the same feeling about the market. Instead of "feeling" it, I tried to find out. I thought, "Maybe the money is going to the US Treasuries, as Primary Dealers are required to absorb such a large amount of Treasuries every single week..." I went to the New York Federal Reserve's site. They have the average trading volume of US government securities transactions by Primary Dealers (you can enter your query right here). I downloaded the data for the past 1 year and plotted a graph. Yes, the trading volume did pick up at the end of May, but it was the level of June last year. According to New York Fed, the average daily turnover was $570 billion in 2007.

So I went to check the daily trading volumes on New York Stock Exchange, S&P 500, and Nasdaq. They are indeed low end of the elevated level seen since September 08, but if today's volume level occurred in 2007 it would be considered high. Nasdaq in particular looks just as robust. The volume charts for the indices are for 2 year, daily. The blue lines are drawn at today's (or the most recent, in case of Treasuries) volume.

I don't know what to think now. It's possible that all the liquidity has gone to dark pools, and we have no way of knowing (yet).

But just by looking at these charts, you could argue that the volume on the stock exchanges and the turnover of Treasuries are going back down to the pre-crash normal.

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