A few rules on volume
Prices and indices can fall on increasing or decreasing volume – the norm is for light volume in the early stages of a corrective period with gradual expansion as the correction matures
Prices must rise on rising volume or the move is considered to be false - the norm is for heavy volume in the early stages of the advance with a gradual reduction as the advance matures
Important junctures or turning points at tops and bottoms are usually accompanied by volume spikes
Below we see the NYSE Composite – daily with a 10 and 30 day volume oscillator – note the bullish volume expansion of the November low – the reduction into the January peak and now the bullish expansion during the March 2009 low
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5 comments:
Hi there,
From your chart I see volumes ways away below the MA's... does this mean the rally won't hold? I'm on the camp that this is a 'fake out' but I would not go long or increase hedge positions for now.
Granville's OBV is useful in spotting trends in volume expansion... maybe you can talk about that a little bit.
Bill,
Regardless of bull or bear market the natural tendancy of the masses is to buy when prices are going up and sit back and hold when they are going down. Volume action is important when it is higher then these normal tendancies. The difficulty is, however, to define the normal volume activity for each stock or Index.
Hello Chrispy
The volume scale and the MA scale are in the same window - to save space so they are not related but - the volume bars will lead the slower MA's - I agree the market is over extended in the short term
Bill C
Hello Canuck2004
I agree to OBV is a valuable tool - will explore over the next few weeks
Bill C
Hello Bill,
About the recent market rally : it's the first time in a year, that a rally didn't happen on decreasing volumes. And we have a positive divergence on the MACD. Two good signs that our stock markets could start an up trend like the Chinese stock market. The only market of the world that is up ! It should be our turn to "copy" them !
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