by Daniel Brouse
April 24, 2025
Recently, the major stock exchanges have experienced a significant decline in trading volume. When evaluating stock market indexes, it’s essential not just to focus on price movements but also to consider the number of shares traded (volume). Volume acts as a gauge of market conviction and liquidity. Without it, price trends can be misleading.
In situations where lower volume results from both buyers and sellers stepping back, the market may enter a holding pattern—what some might call a “wait-and-see” phase. In this case, the potential for distortion is more limited. However, if the drop in volume is primarily due to a shortage of sellers, it can create a deceptive picture of strength in the market.
The stock market functions on basic supply and demand principles. When there is a scarcity of shares for sale—even without robust buying pressure—prices can still drift higher simply because there’s little resistance on the sell side. This can give the illusion of a rally, when in reality, it’s just a reflection of an imbalanced order book.
This is precisely what seems to have been happening over the past few weeks. We witnessed a massive sell-off, followed by a sharp drop in prices. Those who wanted to exit the market likely already did so. Meanwhile, long-term holders—especially those looking to ride out the volatility—have largely refused to sell. The result is a thin, seller-depleted market that can give the false impression of stability or even recovery.
This lack of sellers distorts the true state of the market, making it appear healthier than it actually is. It’s crucial to recognize this context before interpreting any apparent gains as signs of genuine market strength.