Using Volume As An Indicator....

Discussion in 'Trading' started by stonedinvestor, May 30, 2008.

  1. Folks I have spotted a HUGE change in the investment landscape and it is so fundamentally important I feel we have to talk about it.

    When the market rallies we often look for volume as a blessing of the strength in that rally, indeed how many times have we looked for that all important $2 Billion plus volume confirmation day? In the recent rally of last month quite a few times I pointed to the low volume as a trouble spot... but in those longs shots of the NYSE floor we see on TV it looks so
    empty.... and slow... haselectronic trading changed how we should view volume? - YES. I spotted this headline on Bloomberg-

    NYSE Trading Falls to 7-Year Low as U.S. Volume Rises ....

    Where do we get the US Volume figure from? I have never heard of Bats trading Inc? have you? But we need to get these figures!

    Trading on the New York Stock Exchange fell 26 percent this quarter to the lowest since 2001 as competing platforms such as Bats Trading Inc. captured market share and the total volume of U.S. equities climbed.

    Investors are moving away from the floor brokers who dominated trading for most of the Big Board's 216-year-history. The increasing use of automated strategies pushed NYSE Euronext to overhaul systems and cut transaction costs to keep pace with orders that flicker in a hundredth of a second.

    ``We're trying to make the technology move as fast as we can,'' NYSE Euronext CEO Duncan Niederauer said May 15 at the annual shareholder meeting. ``The bottom line is that it's very easy to get started and compete with us. The barriers to entry for someone to get a license and compete with us are lower than they have ever been.''

    The NYSE's share of the total value of stocks traded slipped to 52 percent in the first three months of 2008 from more than 70 percent in 1990, according to the World Federation of Exchanges.

    The shares changing hands each day on the NYSE fell to an average 1.27 billion in the second quarter from 1.57 billion a year ago, according to NYSE data compiled by Bloomberg.

    But Woa! >Over the same period, total U.S. trading rose 19 percent to an average of 6.84 billion shares a day, as companies such as Bats and Direct Edge ECN LLC won more business.

    The new venues make it more difficult for technical analysts, who use exchange data to measure demand for stocks. A rally in the Standard & Poor's 500 Index without an increase in volume may fade, analysts say. Last year's rebound in the S&P 500 during September came with the lowest volume in four months. The benchmark peaked in Oct. 10, and fell 11 percent since then.

    ``Technicians should be losing sleep over this,'' said Ralph Acampora, the 40-year Wall Street veteran who helped pioneer technical analysis. ``I can't be as trusting of my indicator, because I don't have all the data.''

    Trading in U.S. markets rose with stock volatility as investors took advantage of wider price swings. The NYSE's move to lift restrictions in March 2007 on automation also helped increase volume by making it easier for brokerages that accommodate rapid-fire strategies.

    The Big Board's smaller rivals reaped some of the gains. Bats Trading took business from the NYSE and Nasdaq Stock Market since it started in January 2006. Kansas City, Missouri-based Bats matched about 8.9 percent of total U.S. shares in April, up from 3.5 percent a year earlier.

    Direct Edge, which is based in Jersey City, New Jersey, has matched 4.1 percent of the shares traded this month, up from 1.2 percent a year ago, spokesman Rafi Reguer said.

    ``The competitive arena for U.S. equity trading has never been as intense,'' said Ciaran O'Kelly, head of global equities at Bank of America Corp. in New York. ``We're in a period of indecision in the marketplace with investors debating whether the recent rebound in the market is a `bear trap' or represents a sustainable rebound in global equity indices.''

    Analysts can no longer count the NYSE or Nasdaq trades to gauge volume. Trading on the NYSE fell to 1.05 billion shares on May 12, the lowest this year. The average over the last 30 days dropped to 1.26 billion shares, the fewest since October 2004. The 30-day average on the Nasdaq, owned by Nasdaq OMX Group Inc., declined to 834 million shares on March 14, the lowest since October 2004.

    HOWEVER- U.S. stock trading on every exchange rose 24 percent in April from a year earlier to an average 6.8 billion shares a day. The average reached a record 8.92 billion in January.

    ``At one point, you were able to focus on the volume on the NYSE or Nasdaq,'' said Ryan Primmer, the Stamford, Connecticut- based head of U.S. equities trading at UBS AG, the brokerage that handles the most shares in the U.S. ``Now it's only a slice of the picture. You need to look across all venues to understand the whole picture because no exchange is the dominant trader.''

    The S&P 500 rallied 9.5 percent since March 10, boosted by the Federal Reserve's support for the bailout of Bear Stearns Cos. and the steepest interest-rate cuts in two decades. Average NYSE volume during the advance was 1.41 billion shares a day, 9.5 percent below the same period last year. Total volume on all exchanges ROSE 32 percent to an average of 7.27 billion a day during the period compared with 2007.

    ``More volume means there's more money and support, more demand and momentum,'' said Acampora, the director of technical studies at the New York Institute of Finance. ``You need money to push stocks up.''

    NYSE Euronext, the world's largest owner of stock exchanges, mitigated the impact of the Big Board's decline by drawing more business to its all-electronic Arca electronic market. Thain acquired Arca in March 2006 and increased automation to meet demand for faster trading.

    Niederauer, who took over from John Thain in December, has spurred Arca's growth this year through a series of fee cuts to recover business lost to Nasdaq and is making floor trading systems 90 percent faster. NYSE Euronext last year had to close three of five trading rooms as the ranks of floor brokers thinned to fewer than 700.

    ``It saddens me that the floor is as empty as it is,'' Niederauer said at the investor meeting last week. ``We are doing everything we can think of to try to reverse the trend.''

    >> Ok Folks this is huge and a game changer. We need to find out where we can get the TOTAL US VOLUME figures on a regular basis... this is critical NOW. If such a site does not already exist someone could make a lot of money by tabulating all the volume at these outside marketplaces and providing one total US volume picture to investors. As it stands now we have all made assumptions based on volume which we now must rethink. ~stoney
  2. Joab


    I don't understand the concern.

    Why do we care WHERE the volume is traded ?



    It's all still reported
  3. ammo


    looks like watch to play nyse to the short side
  4. Where? When I look for volume I stare at the nasdaq ticker that is NO LONGER an accurate gauge this is huge for investors and more importantly for armchair technical types like myself. If just one of your inputs is wrong it weakens the whole investment thesis....~ si
  5. piezoe


    Use relative volume rather than absolute. Even as volume is distributed among other exchanges the relative relationships should hold, shouldn't they?
  6. I suppose if you are backward looking relative volume would work, you would look in the paper's stock tables if that were to exist anymore and get your volume figure. In real time where buy programs are set of in my head (and in actual programs) based on the DOW's and nasdaq's volume figure- we have to now always doubt low volume figures until we can tally up all the exchanges. ~ stoney
  7. Piezoe here is a service that people pay for my brotherinlaw passed it on to me it is an example of what I am talking about--

    Turnover crept higher across the board. Total volume in the NYSE was 3% greater than the prior day's level, while volume in the Nasdaq picked up 6%. Although it was the second day of increased trading activity in the broad market, volume in both exchanges remained below average levels for the fifth straight day.

    So you can see until EVERYONE clues in on this problem we have a problem.... are exchanges below average levels or not? ~ stoney
  8. piezoe


    I guess i am just little slow to catch on. I can see that if the fraction of trades made on a particular exchange were to change precipitously over the time period for which the average volume is computed you might have a problem. I guess i am assuming that that is not happening, but i may be wrong about that.
  9. I'm still trying to figure out what affect - if any - those "dark pools" have on seeing volume. Do those trades show up in total volume - and does it matter?? :confused:
    #10     May 30, 2008