A Year to Date look Volume and Volatility in the SP500

Dec 16, 2009: 7:24 PM CST

With 2009 coming into a swift close, and price forming the tightest consolidation of the year, let’s take a look at the entirety of 2009 so far and pay special attention to Volume and Volatility in the S&P 500.

Let’s see this indicator by indicator.

The first panel is – of course – Volume, which has been showing a persistent negative divergence for the better part of the rally off the March 2009 lows.

Unless something has fundamentally changed about volume – and that is entirely possible with the “dark pools” and other consequences of the Financial Crisis of 2007 – then the signal volume sends is that of a non-confirmation of higher prices.

Second, we have the 3/10 Oscillator, which also has been showing a persistent negative momentum divergence with higher price highs.  As price flirts with new 2009 highs, the oscillator is flirting with the zero level, well off the prior highs.

Next, we see the ATR or Average True Range.  This indicator is used to sum the average expected daily price move as a running total of the last 14 days.  The indicator is a measure of volatility, and is currently reading the lowest level of all of 2009 – value 13.  That highlights or signals a tight market compression… like a coiled spring.

Finally, we are looking at the Volatility Index – the VIX.  This is a favorite tool of Options Traders, but it can give stock traders insights into the volatility of the market.  Right now, the VIX is at its lowest levels of the year – just above 20.5.  Remember that we began 2009 with the VIX above 50, after peaking just shy of 80 in October 2008.

A low VIX signals ‘complacency’ in the market, which is confirmed by the tight range compression that began in November.

It’s been said that the “Big Boys” are going to try to hold the market steady right here until the end of 2009 so they can send out nice account statements to their clients, so no big fund is willing to rock the boat, so to speak.

The levels to watch are clear – 1,121 to the upside and 1,080 to the downside.  Any break solidly above or beneath that level could result in a strong momentum move… so be on guard as we wind up the final 10 or so trading days of 2009.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

8 Comments

8 Responses to “A Year to Date look Volume and Volatility in the SP500”

  1. twc2009 Says:

    Hi Corey,

    I appreciate your methodical approach to the TAs, perhaps, one of the best I have come across online.
    here is my 2 cents:

    It appears that the peaks in the ATR correspond to the dips in the instrument. So, in this case, the ATR being so low, $SPX is probably going HIGHER. You get a better picture of this corelation if you go a few years back.

    Also, considering the rising 50/200 MAs, tightened bollinger band (hasn't been this narrow since mid 2007 when the market kept going higher), and a very bullish $NYAD (adv-dec line), and other factors you mentioned, the upcoming BIG move points UP, IMHO.

    Let the games begin!

    GLnGT
    twc

  2. pipercolt Says:

    tw, we'll probably tag 1130 by the end of the year, the fact is this chart is very bullish, for my shorts to have worked would have had to fail at the second test of 1100 which didn't happen.

  3. thetradedetective Says:

    Hey Corey,

    It's funny I posted almost the exact same analysis

    I'm going to go against TWC below, becaues of what I'm seeing with a slower MACD on longer term charts. It could just be as you say, volume is just inheritly lower since the financial shakeup.

  4. Bob Says:

    If the big institutional players are in fact holding until year end to ensure their fund performance numbers are secured, which is a solid hypothesis, a shift might be visible just prior to year end; increased large block selling to lock in gains and increased short interest. So far, this hasn't happened, but some may get an itchy trigger find, jump the gun and start a cascade of selling. This rally could unwind in a hurry if there's volume participation.

  5. Bob Says:

    The prolonged trading range in the S & P can also be viewed as a period of transition and rebalancing. Those who've been long the market are likely unwinding some of their positions here, while other late to the game are trying to board the gravy train. The ultimate question… “Can this fat turkey fly again”?

  6. thetradedetective Says:

    Hey Corey,

    It's funny I posted almost the exact same analysis

    I'm going to go against TWC below, becaues of what I'm seeing with a slower MACD on longer term charts. It could just be as you say, volume is just inheritly lower since the financial shakeup.

  7. Bob Says:

    If the big institutional players are in fact holding until year end to ensure their fund performance numbers are secured, which is a solid hypothesis, a shift might be visible just prior to year end; increased large block selling to lock in gains and increased short interest. So far, this hasn't happened, but some may get an itchy trigger find, jump the gun and start a cascade of selling. This rally could unwind in a hurry if there's volume participation.

  8. Bob Says:

    The prolonged trading range in the S & P can also be viewed as a period of transition and rebalancing. Those who've been long the market are likely unwinding some of their positions here, while others late to the game are trying to board the gravy train. The ultimate question… “Can this fat turkey fly again”?

    Also, a prolonged trading range is advantageous to larger institutional players. It allows them to unwind large volume positions slowly and discretely without attracting too much attention.