Monday, February 01, 2010

A Look at the Recent Pickup in Stock Market Volume and Volatility

Note how volume in the S&P 500 Index (SPY) has picked up with the recent decline (bottom chart) after having moved steadily lower through the bull rise.

With that rise in volume, we're also seeing a pickup in volatility (top chart), which I measure as the five-day average daily high-low price range for SPY.

We can see that, while volume and volatility have picked up, they are nowhere near the extreme levels that we saw late in 2008 and early in 2009. Nor are they significantly greater than the levels we saw at the October lows.

I will be tracking relative volume throughout the trading days this week to gauge whether we are likely to expand volatility (and extend the market downside) vs. consolidate at these levels as part of a normal market correction. For relative volume norms for the ES contract (which is what I track during the market day), please check this post.