How Else Can We Interpret Recent Volume Developments as Bearish?
Nov 11, 2009: 5:07 PM CSTLooking inside the most recent short-term moves in the broader market, we see a stellar signal from reading volume alongside with price.
Using classic volume interpretation methods, we can only come to one conclusion - volume insights are sending a bearish non-confirmation signal as the market grasps at recent highs, and either volume is going to have to pick-up (increase) to keep this rally going… or else price is going to have to fall via the signals from the “Voices of Volume.”
Let’s look at the 15-minute SPY chart from late October’s sell-off to the present rally into fresh highs.
(Click for full-size chart)
Under classic volume analysis, we expect that “Volume Goes with Price.”
Meaning, watch upward moving volume to “confirm” a price move - whether up or down; and watch declining volume to “disconfirm” a price move (again, either up or down).
Thus,
Rising prices + Rising volume = Bullish (continuation)
Rising prices + Falling volume = Bearish (non-confirm / reversal)
Falling prices + Rising volume = Bearish (continuation)
Falling prices + Falling volume = Bullish (non-confirm / reversal)
You can read more about this in my “Volume Voices” page at the Education Center.
How do we overlay this information into the current chart above?
As price fell from its October 21st peak, volume rose during the entirety of the down/selling phase into the $103.50 lows (from the $110 highs). That serves as a Bearish Confirmation that sellers are ‘picking up urgency’ to sell and hints - from volume’s voices - that lower prices are ahead.
In yet another “Bear Trap” (see my prior posts:
New S&P 500 Highs Forecast by Sprung Bear Trap
A Look at the 12 Recent Failed Short-Sale Signals in the SP500
… prices did indeed manage to rally to new recovery (fresh 2009) highs… but each day brought lower relative volume, serving as a Bearish Non-Confirmation of higher prices.
The fact that price is rallying so strongly on lower volume is bearish in nature, and is a warning sign to anxious buyers on the sidelines who feel they may have missed this rally.
Now would not be the time to “panic in” to the market, if the voices of volume are correct.
Does that mean that prices are going to fall off a cliff from here? Not necessarily - but it is a yellow light that serves as a warning - a non-confirmation, or a sign of ‘weakness’ that price alone is not telling you.
Always look ‘under the hood’ of price alone to see what else might be happening.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade
