Thursday, September 03, 2009

Midday Briefing for September 3rd: What Relative Volume Tells Us

As we can see from the top chart, it has been a quiet afternoon in the S&P 500 (ES) futures, as traders pack it in ahead of Friday's unemployment numbers. Because volume correlates so well with volatility, I find it very useful to track the relative volume of the day's market as a way of seeing how today's volume at each half-hour period stacks up to the median volume from the last few months. (For a listing of those half-hour norms, check this post).

Note how, in the bottom chart, today's volume dramatically fell short of its norms starting with the 10:30 AM half hour. Recognizing that was very helpful in anticipating a slow, range market and adjusting trading accordingly. (I sat out the afternoon session to this point for this very reason).

It's a simple calculus: large traders move markets. If we don't see large traders participating in the trade, the markets aren't likely to move.