Monday, June 29, 2009

Low QQQQ Volume In an Uptrend Revisited

Friday night the Quantifinder identified the below study. I haven't updated it in over a year so I thought it would be interesting to do so.

Results are much the same as they were a year ago. Low QQQQ volume in an uptrend has often signalled at least a short-term drying up of buying interest. Historically this has created negative expectations over the next several days and weeks.

Much of the net negative thrust has often been found in the 1st two days following the setup.

1 comment:

Daniel said...

I'm concerned about all volume studies being currently (past couple months) misleading, in a subtle way.

If one looks at volume during much of 2006 and 2007, esp. on the SPX, it was generally lower than the current so-called "light" volume.

Is it possible that NORMAL low volume, which normally means "waning of interest" or somesuch, and has normal implications, correlated with the topping process, is something different than a kind of SYSTEMIC low volume, representing not so much disinterest, as a massive loss-of-confidence in the structure and system?

Norman Fosback in his classic 'Market Logic' explored this distinction. In this kind of case, steep price rises on low volume are BULLISH.

The logic is that the low volume represents not a topping process, but a deeply reticent WAIT and SEE attitude on the part of the cash-rich behemoths. What makes it bullish is that huge gains are already 'booked', behind us... and yet we've used up little of the available sidelines firepower in getting to this point.

Breakouts in various markets, past not-too-distant overhead resistance points, could bring a huge continental shelf of sideline cash into the market, splashing it in a whoosh to new highs for the year. A confirmatory breakout is, after all, the 'precipitating event' all the reticent cash has been waiting for!

This is why I've NOT been honoring short-sell setups for the past while. And at least until we’ve cleared this favorable seasonal period ahead, I will continue to pass on them...