Posted on 04/15/2007 9:10:35 AM PDT by george76
THE STOCK MARKET HAS PUT on a nice show with the Dow Jones Industrial Average rising some 5.5% off its March 14 intraday low. Along the way, it has ignored several technical barriers and even saw one major index, the New York Stock Exchange composite, set a new closing high.
But from the start of the rally through this week's action, trading volume has been conspicuous by its absence. Without volume, the market will soon run out of fuel, and under such conditions we cannot expect it to run much longer (see Chart 1).
What's the big deal with volume? Let's just say that high volume tells us that institutional players and the investing public are fully involved. Money continually comes into the market and demand remains firm -- just the combination needed to sustain a true rally.
Low volume tells us that the rally has been sustained by bottom fishers and momentum players, the latter arising from an attitude that the rising trend will bail out ill-timed purchases. These people can and will turn tail at the first hint of trouble, as they did Wednesday morning.
Years ago, noted market technician Ralph Acampora, then of Prudential Securities, said, "In price there is knowledge," referring to the trends and patterns of a stock yielding all the information needed to make an investment decision.
But Dennis Jarrett, then of Kidder Peabody, added the corollary, "In volume there is truth." I interpret that to mean that volume was the key component needed to validate a price move and any pattern, trend or breakout that occurred without it was not to be believed.
Not all rallies end with declining volume...(see Chart 3).
(Excerpt) Read more at online.barrons.com ...
Are we doomed yet?
In 1929, there was plenty of volume. All down.
In the Clinton years, if the market went up even a few points a day, it made headlines and the Clinton administration crowed about it at every opportunity.
The volume of buyers are apparently now slowing some.
If the volume of buyers goes much lower, then the prices may fall soon.
Hopefully the volume of sellers do not overwhelm the buyers as in 1929.
an earlier thread...this AM..... stated that stocks are ready to “Take Off”. I like that news better.
Bottom line, if there are a lot of buyers and sellers agreeing on a price (or trading) then a lot of people agree that a price is correct.
Low volume means only a few people are setting the price. When volume picks up, the larger number of players will invalidate the previous price and render it meaningless.
Bottom line without theory-low volume means big volatility or you don't know if the prices paid are reflective of reality. High volume means a lot of people think the price is for real.
Not yet, but maybe we are due for a correction ?
The media loves to promote good news for the DUmmies and silence for us.
That is the fun of markets : multiple opinions and decisions.
Both sides maybe correct depending on the time frames.
Speculation depends on volume. Investing does not.
It may be running on empty, but the deteriorating state of the dollar is a serious enticement for foreigners to buy into the US market, and the amounts of liquidity being injected by the Fed on a daily basis are just staggering. Further, the Yen carry trade has been reignited in earnest after a very brief period when it looked like it might reverse. I make no statement as to the supposed health of the economy, but I expect the stock market to keep rising despite any logical, historical, rational, technical, or fundamental reasoning simply and only because so much money is being firehosed into it.
Excellent point :
“... I expect the stock market to keep rising despite any logical, historical, rational, technical, or fundamental reasoning simply and only because so much money is being firehosed into it.”
It is a good thing everybody is not in a lot of mortgage debt, and that home values are solid as a rock.
Possibly another house built on sand?
Earnings season is just about to start. Doesn’t this author know that?
The other things that are happening are all bullish for the market, IMO: 1: estimates for the current earnings season have been brought way down to “easily” achieveable levels, so the bar has been really lowered. 2: The market has been conditioned over the past 3-4 years to accept virtually anything, including high oil, large numbers of mort defaults, terrorism of any and all variety and severity, and gold and most commodities skying. 3: China has emerged as a massive buyer for many commodities....nickel and copper (which have blown the doors off gold) come to mind, and to preserve the impression of low inflation, the Fed IMO MUST make the stock market outrun any (or at least most) of these items.
Unless you have very specific knowledge, IMO you just can not short this market. You’ll be killed. Take it from one who’s felt that pain.
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