Here is why you hear me talking about volume so much: Last week, we had three range days, and two trend days. Monday trended down, and Thursday trended up. You could have spotted the trend days by looking at nothing but volume, which surged on both days.
The chart below shows SPY (15-minute bars) with a “volume projector” indicator. The blue bars are the cumulative volume to that point in the day. So, the blue bars always march upward as volume for each new bar is added to the total of all the previous bars. The red line is the same thing from the previous day. So, if the blue bars are above the red line, then that means volume is outpacing the volume of the previous day (click chart to enlarge):
So, if you looked at nothing but the lower panel of the chart, you could easily spot the trend days. And on Wednesday, you had a hint that the morning’s surge would not last because volume was very light compared to Tuesday morning’s volume.
A surge in volume tells you that traders are excited; that the herd is stampeding, and that it is usually a good idea to stampede with them – at least until the end of the day.
Note: If you use TradeStation, you can download the code here. If not, the algorithm isn’t very complicated.
My definition of “Green shoots” – those green pieces of paper shooting out of the Fed.
When you posted that sentence as far as I remember on Thursday I thought that this is right on the spot. Like Brock Lesnar hammerfisting Ben Bernanke in his snobbish face.
Very nice and interesting graph up there. Well done. Thanks, Matt.
Matt,
Very cool. Thanks.
Dressguard,
Rumor has it that Bernake is Goldberg in disguise. Either him or Stone Cold.
On the subject of volume, I thought this was a great read:
http://www.financialsense.com/Market/wrapup.htm
It looks at $NYUPV and up:down volume, comparing the start of the 2003 bull to where we are right now. I don’t see the fingerprints of a bull, but rather the footprints of a bear. Many, many of my charts are screaming beware the bear.
JG,
Yes, market internals such as breadth and volume have been deep in a bear market of their own. The big question is whether or not prices will follow. Maybe the market will go sideways until earnings season begins. (Alcoa starts it off on July 7th.)
Three months ago, expectations were very low for earnings. But through the miracle of mass layoffs, many companies were able to beat the low expectations.
But this time, expectations are very high, and I don’t see how the market rallies again.
Matt
Krugman’s Intellectual Waterloo: http://mises.org/story/3530
I can’t believe that even Krugman is an asswipe.
Anyway to do this on StockCharts??
TommyTek,
I’ve tried making that chart in StockCharts but unable to do it. Now looking at StrategyDesk to see if it has that capability.
Matt:
The Krugman article was interesting. I have his audio book of the “Conscience of a Liberal.” I gave it a listen and one of his compelling arguments is that there would be no middle class without gov’t programs & collective bargaining & that when these programs are scaled back or when the idealogy was blindly laissez-faire the standard of living and income disparity were quite noticeable. I know things are not so absolute but having to choose among robber barons and Keynesians is no fun! I don’t think it has to be set up this way but the population plays follow the leader – only a remnant understand the dangers of central planning that is never checked by local customs, desire, and good old fashioned independence – monetary or otherwise. Federalist here – can you tell?