Reflections on Volume

Big volume without further upside equals distribution
Big volume without further downside equals accumulation

Volume tends to peak at turning points
Volume often precedes price movement
Volume is a relative study

Saturday, March 13, 2010

What the Markets Are Saying

Even though the S&P 500 is within a fraction of a new high, neither the Dow Industrials nor the NYSE Composite is within immediate striking distance of a new high. And instead of the market attracting heavy volume in preparation for a breakout, the NYSE again traded at the lowest average range of volume in 18 months. Breadth, which was strongly positive last week, has deteriorated to barely on the plus side.

Trading a market like this can be a testy affair, so it's probably best to stay out until the market itself telegraphs its next move. And, at this heady price level, that message should be coming soon.

A breakout should be accompanied by higher-than-average volume, which would confirm that there is considerable optimism that the markets are heading higher.

In the absence of heavy volume, the Dow could double-top and head back down to the initial support line represented by the 20- and 50-day moving averages at 10,380 to 10,390. And if that zone fails to hold, the next support is at the Feb. 5 reversal day low of 9,823.

The market is finally at a point where it must reveal its next move. We have to watch and wait, and not try to anticipate the move, since what could initially appear to be a buy or sell signal could quickly reverse to the opposite side of the ledger.

It is almost as though the market is trying to mislead the vast majority of investors and only reward those with the most patience.


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