Technician Edge: What’s Up with Volume? Something’s Gotta Give!

Apr 13, 2010: 2:41 PM CST

I couldn’t resist taking a look at the lengthy and often discussed negative volume divergences in the S&P 500 (and other indexes), so I addressed that issue in today’s column at the Green Faucet’s Technician’s Edge Column with a post entitled:

What’s Up (or down!) with Volume Lately?  Something’s Gotta Give!

I show different perspectives in the article, including this view of the entirety of the 2008 Bear Market and 2009 recovery phases and compare volume in both stages.

While we once saw weekly volumes in the 30 billion shares per week range as the market bottomed in March 2009, we’re now seeing levels at and under 20 billion shares per week.

It’s not just that volume is declining since the March 2009 low, it’s also declining – as seen in the SPY chart below – from the rally off the February 2010 low.

Price has maintained a stable rising trend channel off the February 2010 lows, while in so doing, locking in a negative volume divergence all the way up.

While we used to see volume spikes in the 60 to 70 million per share level at the start of the rally, we’re seeing hourly volume peaks in the 30 to 40 million range.  All the while, average volume has declined.

I highlight five potential causes or reasons for the divergences – at least since the March 2009 lows:

  • Leverage/Margin Considerations (less margin used)
  • Shift from Trading to Investing (shift from day-trading to swing-trading or investing)
  • Disgust with the Market (“I’m never investing or trading again”)
  • Higher Share Prices Lead to Lower Turnover and Speculation
  • Bankruptcies – both of individuals and financial companies

Visit my Technician’s Edge Column at Green Faucet for the entire article (and other news stories) and feel free to share your thoughts on why volume continues to go down while price continues to go up.

Corey Rosenbloom, CMT

19 Comments

19 Responses to “Technician Edge: What’s Up with Volume? Something’s Gotta Give!”

  1. mndrija Says:

    The volume represents number of shares traded. Higher prices = fewer shares traded. Simple as that.

  2. Mark G. Says:

    See Fisher's debt deflation on equity markets trading at low volumes

  3. hfguy Says:

    Corey,

    Have you thought about a) at the trough there was panic trading (high volume) and b) look at value traded (vs. volume).

  4. Corey Rosenbloom, CMT Says:

    That's another one to add to the list!

    There really were people accumulating or shifting portfolios bullishly (Warren Buffett, for example) from December 2008 – April 2009 and forward which undoubtedly accounted for higher volume. Generally all value investors at that time, for sure. Plus that was combined with panic selling indeed. Both forces contributed to higher volume then and now there is no panic (from the sell side) and Value Investors have already bought at much lower prices and are holding (not selling) and not buying either.

  5. Corey Rosenbloom, CMT Says:

    True, but I think there's plenty of other reasons beyond those mentioned here the account for the developments over the last year.

  6. Mark G. Says:

    None the less, you still have a low volume melt up with ultra loose fed policies. I'd like to see a chart of other rapid gains in markets and the corresponding volume

  7. tgarfield Says:

    Volume is only when compared to the lows. look back 10 years. This low was capilulation where longer term holders gave up and many stocks have new owners/investors.

  8. ricosauve Says:

    I just ran an analysis of Price*Volume on SPY–weekly/daily basis. I can see that even though prices are greater, the amount of cash flowing into or out of stocks had diminished up until the market correction that began in January. It retraced a bit and has now continued to fall back towards its previous lows.

    That said, the volume divergence is still disconcerting…

  9. codylodes Says:

    There is no correlation between volume and price over any statistically significant time period in any market that I am aware of. In fact, during this most recent rally, one could plausibly argue the opposite. Price is all that matters.

  10. Corey Rosenbloom, CMT Says:

    Agreed – it's price that pays – everything else is a confirmation/non-confirmation.

    I'm not sure I'd say no correlation, but the relationship is not as strong as assumed, I think that is clear.

  11. Corey Rosenbloom, CMT Says:

    I agree that 2009's low was a major/transitional event that may well have very long lasting implications.

  12. Corey Rosenbloom, CMT Says:

    That's something I'll take a look at for a post in the next few days.

    Thanks for the inspiration!

  13. Corey Rosenbloom, CMT Says:

    Also, Insider Buying has reached low levels as compared with the last few months. I forget where I saw that chart recently.

    One wonders how much more the market can rise while trailing lower on volume.

  14. Mark G. Says:

    Great, also consider the volume spikes on down days (do we have those anymore?)or sell offs during the day. The last I saw on this, volume nearly doubles

  15. Corey Rosenbloom, CMT Says:

    Oh, I agree with that as well. We see volume spikes and surges on the downside and lower volume (relatively) on the rallies.

    Unless something else is going on (the flood of liquidity is changing old rules), then what we are seeing has the classic hallmark of distribution.

  16. Osikani Says:

    True enough. except that historically, the stock market is the only place where we have seen the irrational behavior of the participants wanting something more, the more the price rose, until the bottom would fall out at the top (pun intended).

    This melt up, conspiracy theory or not, must be the longest rise ever on declining volume. If you are right, it just lends credence to the lack of participation. After all, if only the same people are buying, then they would become price sensitive at some point, and reduce their purchases as the price rises.

  17. ricosauve Says:

    This low volume also is throwing off Short Interest Ratios on the Broader Market.

  18. hfguy Says:

    If you look at the 02-07 time frame, value traded (volume * price on a weekly basis) did not really pick up until Q4'04 even though the market bottomed out in Q1'03 – roughly 18 months during which the market rose roughly 40%

  19. hfguy Says:

    If you look at the 02-07 time frame, value traded (volume * price on a weekly basis) did not really pick up until Q4'04 even though the market bottomed out in Q1'03 – roughly 18 months during which the market rose roughly 40%