Tuesday, October 14, 2008

Volume Clues

The markets wild ride is virtually unprecedented when looking at price action. Determining the markets next move based price bars alone is difficult to dangerous at this time. My current focus is on volume. On Monday the Nasdaq rose over 11% yet the volume was the lowest in 5 days. Previously, the largest percent gain accompanied by a 5-day low in volume was under 6%.

To get a sizable number of occurrences I had to lower the % gain to 2%:

Indications are for weakness in the 5-10 days following such occurrences. Below is a table that appeared in last night’s Subscriber Letter which looks at gains of 3% accompanied by the lowest volume in 5 days:

The larger % gains showed even worse performance.

As I type this morning the Nasdaq weakness is playing out. The Dow and S&P remain higher though. NYSE volume was also fairly unimpressive on yesterday’s rally. I’d be wary of further gains on low volume. I’d also continue to watch volume for clues at a time when price action is incredibly volatile.


Anonymous said...

Rob, Monday was a banking holiday and bond market was closed - hence the lower volume.

Anonymous said...

you are so smart kl

Anonymous said...

Wow, you actually called it exactly right with today's large drop.(regarding the post on the rally with low volume and how it tends to come back). Good research. Good call.

Anonymous said...

the market rallied immediately after the crash, posting a record one-day gain of 102.27 the very next day and 186.64 points on Thursday October 22. It took only two years for the Dow to recover completely; by September of 1989, the market had regained all of the value it had lost in the '87 crash. I can't see that happening this time. Its gong to be sliding down for the next few months.