Monday, July 25, 2011

Very Low Volume At A New Short-Term High

I have been away for a while.  When I’m away subscriber services continue pretty much as normal but blog posts tend to suffer.  I’m back and will have a couple of posts this week and then get back to the 3 or so per week starting next week.

Very light volume at new highs as we saw on Friday often indicates a rally is running out of buyers.  Frequently such light volume is followed by a pullback in the next few days.  There were several studies that appeared in the Quantifinder Friday that demonstrated this point.  I’ve chosen one that was also in the Subscriber Letter to highlight below.  Blog readers last saw this study on April 5, 2011.

This study looks back to the inception of the SPY in 1993.  The numbers above look fairly compelling.  I also found the edge to be quite steady over the tested period.  Of course with the gap down in the futures, much of the downside edge may be realized quicker than usual today.  It’s possible it won’t persist for as long.  Nonetheless, as I’ve shown many times before, volume does matter and traders should pay attention to it.

1 comment:

Anonymous said...

We're glad you are back up and running...

Your volume studies over the years are inarguable. Most of the time I have no qualms or quibbles.

Here though, the "closely watched event" effect may be the determinant factor. Intraday, or on a daily chart timeframe, there are times when all participants simply sit on their hands until a closely watched event resolves, and then frenzy erupts. Such low volume stretches do NOT (imo) nec'ly represent a drying up of buying-interest, but a kind of temporary paralysis.

I suspect this case may be one of the latter, so I am taking this one instance w a grain of salt.

Please keep in mind Rob, next time you put us readers on a starvation diet like you did, that trying to peer at the market absent the lens of your interpretive studies is like trying to see thru a pair of eyeglasses w one lens having fallen out.