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Our View

One of the things that has changed during the lower volumes is how easy it is for the ES and NQ to change directions, like yesterday's open.

After two down days and a lower open, the markets made a sharp u-turn to the upside. In most cases, a rip like yesterday means a change in direction and the price action. Would the ES have jumped as much without the hot ISM number? I think it would have rallied, but it would have taken a lot more time.

With the crowd short and the news algos pressing for stops, it was just a big program up. Late in the day just before the selloff, HandelStats said if the ES sold off under 5272.00, it would break. It sold off down to 5248 and rallied back up to 5271.75 just before the 5:00 close.

What happens after every big move is, the volume dries up and the futures fall into a “dead zone” that consists of some long periods of back-and-fill chop. That ends up setting up the next move. I don't think you see as much of this type of price action when the volume is high, so this leads me to believe that the current dead zones are where thrust / volume is rebuilt for the next move and yesterday there were at least 5 to 7 big and small periods where the futures hanging at the same prices for anywhere from 10 minutes to 2.5 hours.

The other part is, when out of nowhere they move sharply, they generally retrace soon after the initial move. Maybe I am wrong, but I think the index markets are continually evolving and these are some new patterns that have arisen over the last few months as the volumes have fallen.

I am sure there are several reasons, but I think the main one is simple: Economic Conditions. During periods of economic uncertainty, investors become more cautious, leading to reduced trading volumes as market participants adopt a wait-and-see approach or hold onto their investments rather than actively trading. I'm curious what you think about where the volumes have gone...