`Volume Shakeout' Could Weigh on S&P: Technical Analysis

June 19 (Bloomberg) -- The peak in stock trading during the market’s decline after April was less than half the volume triggered during the slumps in 2011 and 2010, a sign bears could come back in force, according to Bank of America Corp.

About 4.67 billion shares changed hands on the New York Stock Exchange on June 1, the busiest trading since the Standard & Poor’s 500 Index started its retreat from this year’s high in April, according to data compiled by Bank of America and Bloomberg. That compared with peak volume of more than 9.5 billion in the previous two years, the data show.

The S&P 500 tumbled 9.9 percent from April 2 through June 1 and has since risen 6.3 percent. The relatively slow trading during the retreat suggests a lack of “volume shakeout” and means bears may still have the power to drive the market lower, according to Mary Ann Bartels, a New York-based technical analyst at Bank of America.

“While the short-term technicals support the case for a rally, the risk is that sellers are not yet completely exhausted and an adverse macro news event could trigger a future shakeout,” Bartels wrote in a note dated yesterday.

Stocks rebounded this month amid speculation that central banks will take further steps to spur global growth and contain the sovereign debt crisis in Europe. The Federal Reserve begins a two-day meeting today to decide whether more monetary stimulus is needed to boost the economy.

Volume surged last year as the S&P 500 suffered its worst decline since the bull market began in 2009. Trading on NYSE-listed securities reached 9.89 billion on Aug. 8, when the benchmark gauge was in the middle of a slide that pushed the market to the brink of a bear-market decline of 20 percent. The index tumbled 19 percent from April 29 through Oct. 3, 2011. The so-called flash crash, on May 6, 2010, produced daily volume of 11.4 billion.

Trading on all U.S. exchanges showed a similar pattern. Volume peaked at 8.87 billion shares this year in May, compared with highs of 17.9 billion and 19.3 billion, respectively, for the previous two years, according to data compiled by Bloomberg on exchange-listed securities.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net