Is the current rally the beginning of a new Bull Market, or is it a "Bear Rally?"
Supply and Demand comprise the foundation of market pricing. Research shows that sustained rallies are usually accompanied with expanding volume, signaling increased demand for stocks.
"Volume tends to expand in the main direction of the trend. In a bull market, advances accompanied by increasing volume or declines on diminishing volume are taken to be bullish. Conversly, in a bear market, declines are accompanied by increasing volume and advances show diminishing volume. Volume should always be studied as a trend (relative to what has preceded)." -Richard Russell, The Dow Theory Today
Here is a link to an excellent study of trading volume by William Hester at Hussman Funds.
The chart shows that the current rally is truly historic in terms of percentage gain off the March bottom, but volume has not been expanding enough to instill confidence that this is more than a Bear Rally. To get the most meaning out of the chart, Hester's essay is required reading.
Here is the short course... The chart's blue dates represent the beginning of each bull market since 1940. The red dates represent this decade's bear-market rallies, including 4 during the 2000-2003 bear market and the rally that lasted from November of last year through January.
As Hester summarizes:
"... new bull markets, whether at their inception or soon after, have a history of recruiting noticeable improvements in volume. So far this rally lacks that important quality. Over the next few weeks stock market volume will be a metric to watch closely."