Saturday, January 19, 2008

Stock Market Volume Increasing to the Downside

Here, immediately above, we see the ETF for the S&P 500 Index (SPY) plotted with its daily trading volume from 2007 to present.

We can see a few things from the chart:

1) Volume Rising on Declines - We can see a pattern of rising volume at intermediate-term market lows;

2) Current Volume Rising - We can see volume rising during this most recent decline;

3) No Capitulation - While rising, current volume is not at levels seen during the August decline;

4) Broken Support - The S&P 500 Index, like its smaller-cap counterparts, is now trading below the lows made for 2007.

The top chart comes from Decision Point and plots the Advance-Decline Line for the S&P 500 Index over the last three years (blue line). You can see we've broken well below the August lows, as weakness has caught up to the large caps.

Note, however, the Advance-Decline Volume Line (green line, top chart) for the S&P 500 Index. This adds and subtracts volume rather than number of issues traded. Here we see that the line is approaching multi-year lows (and support). What that tells us is that we're seeing a consistent pattern of increasing volume on declines ever since July, 2007.

As I've stressed in the past, volume is largely dictated by financial institutions, not small traders. It is sobering that the institutions closest to the current turmoil in credit markets and housing (banks, hedge funds) are voting with their feet and heading for the exits.


* Price-Volume Correlations

* Intraday Volume Analysis