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Takeaway: Falling volume? Historically low volatility? Not exactly bullish signals. (And we won't even mention the worsening economic picture.)

Dow Bros Oblivious to Deteriorating Fundamentals - Volume cartoon 08.12.2014

Spellbound investors staring at the price-action on the Dow each day are missing key fundamentals breaking down underneath the surface. As Hedgeye CEO Keith McCullough wrote in a note sent to subscribers this morning, buying equities on lower highs and no volume ... well, that's a fool's errand:

"The relationship between volume and volatility (relative to price) remains core to how I model trending risks – as they chased the charts to another lower-high (price) yesterday (SPX), total US Equity Volume (including dark pool) was -13% vs. its 1 month average as front month equity VIX held the 12-14 level it held during JUL and OCT."

 

Dow Bros Oblivious to Deteriorating Fundamentals - volume 3 21

Check out the chart below. A sub-14 VIX? Not exactly a bullish signal.

Dow Bros Oblivious to Deteriorating Fundamentals - vix 3 22

Caution ahead.