Anyone else find it odd that as the market continues to drift higher and higher, the volume gets lower and lower. Friday was one of the lowest volume days of the year, yet the market rallied and closed near the high for the current move. I don't have a clue what this means if anything for the future direction of the mkt. Perhaps alot of shorties and hedge funds are licking their wounds from the recent rally and have reduced their trading? It could just be that volume is a function of volatility, and we have seen a tremendous drop in the volatility of individual stocks. The drop in volatiltiy in individual stocks/sectors can not be explained by a drop in the vix. Because last spring the VIX was even lower than the curret 23 reading, but many stocks/sectors had 30-50% greater daily ranges last may than they do now. This phenomena is unexplainable. But it has created the worst daytrading environment in at least 20 months.
I looked at a number of intraday charts on a wide range of stocks in different industries, and compared the trading patterns from last year to this year. The Vix was at a similar low level this time last year. So i compared apples to apples as best as possible. It is remarkable that the average 5 minute range of the individual stocks that i studied in many cases was 50-100% greater this time last year than it is now. Note that the overall SPY was not significantly more volatile last spring than it is now, as the VIX shows. Where an average 5 minute bar on a stock chart this year might be 7-15 cents, last year it was 10-30 cents. This is most true for non Large cap stocks, non dow stocks ect. This crazy compression in volatiilty showed up most in mid cap stocks which trade under 2 million a day. Basically your volatile mid cap stocks/sectors of last year are not as volatile on a daily basis. I don't know what it all means. I just found this very interesting. Perhaps this niche of the mkt was abnormally volatile in the past and is now reverting to the norm.
In a nutshell, higher prices and lower volume suggests that fewer people are driving prices higher. How long they will continue to do so is an open question (note that the week made very little progress). The real test will come when supply is dumped onto the market. Whether the demand will be there to absorb it and drive prices higher is just a guess. Try to ignore the arrogance of those who are so sure they know which way prices will go and you should be fine. As to range contraction and the general dullness, these are characteristic of a bear market. If you can't wait for them to resolve themselves, you'll have to find some way to adapt.
Never sell a quiet market. Buyers keep waiting for a concession in prices that doesn't come and volume shows there isn't a lot for sale.
I hear that a rising market on lower and lower volume is a sign the rally will not continue longer. Who is right? Can you twist the meaning of volume to support both bullish and bearish cases? If so, what is the importance of volume?
My unbacktested twenty year empirical observation. Big volume in a down market is bearish because people puke, indiscriminate of "value". Low volume in an up market is bullish because the public likes to buy on reactions that often don't come. When you finally see big volume on this rally, IMO that's a sign to get short.
I am just thinking back thru memory so I might be wrong but it seems that the volume in the nasdaq has actually picked up, especially since the war. NYSE has even had a few larger volume days relative to where it was during the war. In the last week or so it seems that Nasdaq has been averaging 1.5 billion and even had a few higher volume days like 1.8 or 1.9 billion. It seems there was a month or so there where we were lucky to even break a billion shares a day. Silk maybe the contraction in volatility is that in this market institutions, when participating, no longer buy or sell at any price with an regularity. Maybe they are working their orders better since it seems they will need every advantage in order to put up some kind of performance numbers for the year.
To me volume equals validation. No volume, no validation. I am still waiting for a key reversal day. When and if it comes it will definitely be on good volume.