“We’ve had a massive decline over the past week and a half. We’ve had a reasonably massive advance in the last 2 days. We’ve done the advance here in the United States on lesser volume. That’s always disconcerting to me. The market should follow volume. Volume should be rallying as the market rallies. Volume should be waning as the market falls off. This time: volume increased dramatically on the decline, volume has waned on the last 2 days advance. I think it’s reasonable and wise to take some money off the table … and to use this rally to be short.” – Dennis Gartman, June 29, 2016

Pundits absolutely love using volume in support of a call. “Volume should go up when the market goes up and down when the market goes down,” they say. Simple.

Actual analysis supporting such statements? Nonexistent.

From the lows on March 9, 2009, we have endured these nonsensical prophesies for 1,848 trading days. During this time, the rolling-10-day returns for the S&P 500 ETF (SPY) have been down more than 5% on 59 occasions and up more than 5% on 98 occasions.

The average daily dollar volume during 5%+ declines: $33.7 billion.

The average daily dollar volume during the 5%+ advances: $21.7 billion.

Imagine that. Time and time again, we have seen higher volume sell-offs and lower volume rallies (on average, 55% higher volume during declines). And time and time again the market has gone on to hit new highs.

Is this action indeed bearish?

Only if you believe that the 264% gain in the S&P since the 2009 lows is bearish.

Only if you believe that strong forward returns on average are disconcerting.

Since March 2009, there have been 20 corrections greater than 5% in the S&P 500. There have been a myriad of “reasons” for these sell-offs (most recently “Brexit”) but they all had two things in common: 1) higher volume and 2) one pundit or another telling you to sell or short because of this ominous volume signal.

But why exactly is volume rising during corrections if not for impending doom? Maybe because market declines get much more attention than advances. Maybe because people panic and trade more when there is bad news in the headlines. Maybe because there’s increased volatility in the market which inevitably leads to increased trading among hedge funds and other professional traders/investors.

Whatever the reason, the evidence does not suggest that such an increase in volume is bearish. Nor does it suggest that a decrease in volume on a subsequent rally when bad news/volatility dies down is a cause for concern.

Now you know the big lie when it comes to volume. Why is it perpetuated? That’s another story for another day.