Tuesday, May 19, 2009

Large Nasdaq Price Moves On Weak Volume

Monday’s action was somewhat unusual in that the market rose by such a large amount while volume came in so low. I’ve looked a low-volume rises a number of ways. One set of studies that is popping up again is the 10/14/2008 blog post. There I looked at strong Nasdaq moves that were accompanied by the lowest volume in 5 days. I have updated those studies below:

Indications are for weakness in the days following such an occurrence. I also looked at 3% moves.

The larger % gains showed even worse performance.

Of course Monday wasn’t just a 5-day low in Nasdaq volume, it was the lowest level in over a month. This has only happened 4 other times. Below I list all the occurrences of a 20-day low in volume accompanying a 3% Nasdaq index rise. The exits shown below are simply a 5-day exit.


Douglas said...

Rather than one day events I have studied big increases in the market during or at the end of bear markets.

I have compared the 10 day moving averages (on volume) for each day following the trough (most recently 666 on the S&P 500 of course) - compared with the 10 day MA on the low.

Bear market rallies show significantly weaker volume - in almost all cases - compared with new bull markets.

My model allows me to choose any number of days out from the trough and a scatter graph will show where each occurrence is on volume v rise on the index.

I also noticed that the end of the bear market rally seems to be accompanied by a further dip in volume - however, new bull markets also seem to take a breather with a dip from their (higher) volume levels. I have not fully quantified this yet to turn it into a trading signal.

However, the current climb since 9th March looks to me like a bear market rally.

Daniel said...

Douglas, Rob, other commenters, we’ve had a strong UP move, lasting weeks. And we all know the second stanza of the poem that starts with “The Trend is your friend”, which is that “every Trend has its end”. Every movement becomes a MOVE, and can be measured and classed with other similar MOVEs. So the question is always WHAT NEXT, and work like yours Douglas can help clarify the upcoming answer.

What’s your definition of a “Bear Market Rally”? Would a countermove have to revisit March 2009 and Autumn 2008 lows? Could it stop short and form the First Sine Wave of a (sideways) basing or consolidating market, and still be considered a prolongation of Bear as opposed to a weak First Upleg of a new Bull?

As David Fry, editor of ETF Digest, often comments: “..They don't print volume figures on your brokerage statement. Just dollar figures.”

This is not just a matter of semantics, it deeply matters in terms of where one sets targets and how one adjusts parameter sets. As Rob is always stressing, there are no absolutes in historical comparison work-- it always depends on the context. What is happening. What does this rising brokerage balance, and low market participation, actually mean?

That “mom and pop” are out of the game” as Bernie Schaeffer always liked to say? We all know that... Are upside to downside ratios healthy? Does this matter more than gross total shares changing hands?

Food for thought, Douglas as you work on your intriguing sub-model?