Friday, September 4, 2009

Is Thursday's Low Volume Troubling?

In last night’s Subscriber Letter I examined whether the relatively low volume on Thursday’s bounce should be concerning. I examined it a few different ways. Below is one series of tests I showed. First let’s look at what happened when volume came in higher on a bounce following some severe short-term oversold conditions.

(click table to enlarge)

Interesting that the high volume bounces failed to follow through. The number of instances is a bit low but the numbers are fairly compelling anyway. Let’s see how this compares to low volume bounces:

(click table to enlarge)

Here the results have a solid bullish tilt.

These tests suggest that Thursday’s light volume should not be of any concern. In fact, it may be a market positive.


Daniel said...

Rob, I know you’re aware of the daily market commentary of ETF Digest (Dave Fry).

He felt yesterday's absurd close was one of the more egregious RAM-JOBs (by the PPT, or whoever orchestrated that ultralight-volume last 20 minute gallup) yet witnessed.

I cut my teeth years ago on the profound econometric volume studies of Norm Fosback. There are good reasons behind the results of your current study, too complex to go into here.

However, the point is this. If PRICE is the Ultimate Sentiment Indicator, and markets are being last-minute propped and massaged and manipulated-- yes, the final Price may be higher for the day, that is real, in dollar terms... but is the INDICATOR VALUE being lost..?

I personally do NOT regard yesterday as an UP day, in terms of market sentiment. It was a sideways day, borderline weak except for the Materials sector. Plus a “ram-job” (as Mr. Fry puts it) at the end.

Beautifully-logical statistical studies like yours depend on FAIR markets. A manipulated market is a different animal entirely, and this concerns me with regard to your studies, especially when a day is narrowly positive.

A fair election expresses the will of the people. A rigged election may produce a result--and that result may be undeniable--but it no longer has utility as a measurement of the will of the people.

This is another factor we quants have to deal with now.


Woodshedder said...


I like your thoughts, and to an extent, I agree. However, your argument assumes that the markets have never before been manipulated, until now.

If they have before been manipulated, then the study stands, as the markets haven't been fair.

I think it is more logical to assume that the markets have never been fair.

However, neither of us can prove it, so it doesn't matter.

Yet I can't help but think that if you really believe there is rampant manipulation now, then surely you believe there has always been rampant manipulation, especially since the internet age has ultimately made information and transparency more available.

Daniel said...

I believe that there has been a kind of pervasive BENIGN manipulation in recent months, in the form of late-session “propping”, that is viewed by the Powers That Be as yet another way for them to continue to re-liquify the financial system. (Through share-price appreciation.) In that macro-economic sense I personally approve of it.

While there’s always been GAMING, by those who have the capital to do so, (which I think is what you’re referring to), in my somewhat limited experience the only thing comparable would be the deliberate interventions in the Japanese stock market by its government back in the early 90s. Those efforts merely delayed the inevitable, and were eventually abandoned.

I enjoy the daily reports of Mr. Fry, especially his sense of humor. If one is familiar with the term ‘stick’ (to describe an abrupt tall ‘candle’ on a chart), the last minute mega-volume STICK one often sees on the intra-day charts, when the market would otherwise close down--particularly near inflection points, is so patently obvious even a relative novice like myself can only shake the head.

Dave Fry often, on those afternoons, opens his daily commentary with a photo of a hockey goalie making a stick save, and his caption is ANOTHER STICK SAVE! Just this past Thursday he wrote: “Looking at the 5 minute SPY chart you can see ultra-light total volume and then the big “stick save” into the close.” He went on to refer to the “ongoing annoying and manipulative end of day jam jobs” and called Thursday’s “beyond suspicious”. Two further comments about Mr. Fry-- he’s been in the business for 35 years, and he is currently long on the market, based upon his system, so he is not simply whining.

My concern HERE, on Rob’s site, is that his work, to be meaningful, has GOT to be a kind of quantification of INNATE tendencies, as they’ve shown up in the past. When a move tips too far one way, it innately tips back... a kind of ebb and flow of short-term sentiment, which over long time frames gets smoothed out.

If the TRUE sentiment is “thumbs down”, on a given day, but a “stick save” causes an UP arrow at the end, might this not throw off his analysis in a way he can’t compensate for? That’s my main concern, not finger pointing-- which I personally feel would be more appropriate on a political blog site, and not his...