Markets

Stephen Gandel is a Bloomberg Gadfly columnist covering equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.

Investors, it seems, no longer want to buy stocks that are going down. And that, surprisingly, may be a good thing.

Ever since July, there has been a decline in the number of shares traded in S&P 500 companies whose stock prices have been falling. On Wednesday, declining volume, on a 100-day moving average -- it's volatile, so in general most people look at it on a rolling basis -- hit 254 million shares traded, the lowest in two and a half years.

Running With the Bull
The S&P 500 has shown few signs of retreating
Source: Bloomberg

Buying on the dips is generally considered good. It shows optimism and that investors are still willing to take risks. A market's ability to snap back from a loss, rather than spiral down, is something investors watch to make sure a bull market is still healthy. And there has still been some of that. Last week, for example, stocks snapped back the day after the Dow Jones industrial average fell more than 270 points on hurricane and North Korea concerns, and they have climbed further since. But it increasingly appears that the stocks investors are buying when the market dips in general are the stocks that have generally been going up, not the ones headed down.

Buy on the Tips
More and more investors are piling into stocks that are rising rather than buying those that are falling
Source: Bloomberg
Note: Y-axis is millions of shares traded daily. Both advancing and declining volume is a 100-day moving average.

And it's not just volume statistics that are revealing that. Bargain shopping, as one of my colleagues at Bloomberg View commented earlier this week, has not been that great an investing strategy this year. The S&P 500 Value Index, which generally tracks beaten-up stocks, is up just 5 percent this year. The S&P 500 Growth Index, on the other hand, is up 20 percent.

The question is whether this is a problem. Market breadth, which measures the number of stocks that are rising, can be a sign of market vitality or weakness. And volume is another way to look at market breadth. So receding volume flows into declining stocks could be a worry. But there are a number of reasons not to be concerned, at least not yet. First, market breadth overall has not been shrinking. Of the S&P 500, 355 are up through mid-September. That's slightly more than the 332 that were up at this time last year and far more than the 191 that were up in the first eight and a half months of 2015.

Deep Breath
The number of stocks that are up this year should calm some fears that the bull market is coming to an end
Source: Bloomberg
Note: All years are through 9/14

Second, while investors may have lost interest in falling stocks, they have found some in the ones that are going up. Since early August, the number of shares traded in companies with rising stock prices has been, well, rising. That measure, too, is down from where it was earlier in the year, but it's increasing. And an increase of buying on the tips -- money flowing into the market on new highs -- can be an even more bullish signal than the opposite.

Take all of this with a grain of salt. As one market watcher told me, the rise of passive investing has most likely blurred all of these technical market indicators. Passive investors, because of the way indexes work, naturally will push the market volume toward stocks that are going up and away from the ones that are falling, which could be what's happening. The true indicator is whether the volume of active buyers is shifting more toward rising stocks. Nonetheless, if you are worried and searching for cracks in the aging bull market, advancing and declining volume is one less place to look.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Stephen Gandel in New York at sgandel2@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net