Wanted: VOLUME

As mentioned last week, the window is open for a confirmation day:

"Historically, that would be evidenced by a significant follow-through
rally four to nine days after the first big move up after a longer
downturn. Requirements include the major indices rallying 1% to 2%, and
on greater-than-average volume, in that five-day window. It opens next
Monday."

Lets have a look at today’s action, with the Dow up 182, the Nasdaq up over 41 points (2%) on 3 to 1 volume and the S&P500 gaining almost 21.

Although the buyers showed up today, they unfortunately forgot to buy in size. The NYSE ran 1.58B shares, while the Nasdaq had 1.49B shares  Based on the weak volume, today does not count as a William O’Neil’s confirmation day.

That doesn’t mean that markets cannot build on this move, but so far, the burden of proof remains on buyers to prove this move up is the real deal.

They have not done that yet.

>

UPDATE:  July 25, 2006 6:54am

This update combines the ideas from a few recent posts:  On the one hand, we are still in the window ofr a confirmation day. On the other hand, the technicals are unimpressive  and my working assumption is there are more lows before the next rally.

This is still a Missouri market ("Show Me"), and its guity until proven otherwise.

Hence, our strong opinions, weakly held.

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What's been said:

Discussions found on the web:
  1. john commented on Jul 24

    Low volume but a pretty broad based rally from what I can see. Looks like the U.S. ‘Miracle Market” is still intact…although I have some serious doubts about whether it will take out the May highs for this year. I think one real key for the Market will be the expectations of what the Bernanke Fed will do with interest rates going forward. After listening to him speak on several occasions I don’t have a lot of faith in Bernanke as being ‘Hawkish’ enough on Inflation.

  2. Lord commented on Jul 24

    I recall a statistical analysis of technical indicators that showed that volume was actually a contrary indicator.

  3. Fred commented on Jul 24

    High put volume is a contrary indicator. Is that what you are thinking of?

  4. Barry Ritholtz commented on Jul 24

    The classic tenet of technical analysis is that “Volume confirms Price.”

    The reason for this is high volume indicates institutional involvement, and their buying (or selling) tends to be persistent and long lived . . .

  5. BDG123 commented on Jul 24

    This is a dangerous market. To see Sandisk jump 10 points in after hours shows me there is a fair amount of desperation. A willingness to take more risk than usual because no one is making money on the long end? If traders have to ride stocks up overnight with that much vigor to get any action………… The market charts are beginning to look like gun shots all over the place. Stocks gapping up and down 10-20% over a period of the past few months is not the sign of an orderly market. It is a sign of a desperate market and too much money chasing too few opportunities.

    I’m beginning to wonder if the markets are lulling people to sleep with this yo yo action. The techs are quite oversold but then, so what? Semis are in a bear market. Maybe they’ll rally and maybe they won’t.

    If you are going to bottom fish, you’d better have one hell of a bottom fishing lure if the bull market is over. Just because the SPX is holding ground doesn’t mean squat to me. It’s being help up by oil and industrials. Both are prone to late cycle weakness and are a strong sell in my book. There’s alot of stocks beaten to hell that simply can’t keep up this downward pace………unless they are headed to zero. lol.

  6. Cherry commented on Jul 24

    Sep/Oct 2000-3000 point correction near, everything is going according to plan, including the suckers rallies which will wimp out by fall.

  7. Roman commented on Jul 24

    I took a look at some Sep. Dow futures data (since that is what I have most of) and over the past several weeks price has gravitated towards approx. the 11080-90 level. This is right about where price closed today. So what appears to be a bullish day was actually just a reversion to the mean in what amounts to a sideways trading range. But the media has one-day tunnel vision when it comes to index levels. They will say that the bear is dead and bears will say that it’s just a rally in a bear market. The truth however seems to be a story that I don’t hear often: that we are in a sideways market and all the big action we’ve seen is uncertainty and pure volatility. See today for what it really is: a market that closed right at the value equilibrium of bulls and bears that has yet to be broken.

  8. Si commented on Jul 24

    weak volume, but I have to say this market is looking pretty damn tough to me. We got all kinds of things running against it, yet it just does not go down in any kind of real style. Really don’t see the Dow getting below that 10000 mark in the near future. It possibly should, but I just don’t see it happening.

  9. ari5000 commented on Jul 24

    I agree with the bearish sentiments. Why does the market have to keep on jumping 150 points to be a new bull market?

    How about 5 or 6 days of 30 point gains? How about an orderly rise on decent volume?

    Oh yes, because there IS no money entering the U.S. market. There is, once every 5 days, a few billion entering for the day and exiting by 9:30 the next day. And there is the occasional short-covering flurry that ends with new short positions.

    Bearish sentiment — so I’ve heard — is at an all-time relative high. Was this the case in 1987? Were so many people prepared for the crash? Because there are those who say all these bears mean we’re probably closer to a short term bottom.

    Honestly, I have no idea what’s going on. These 200 point jumps followed by 3 down days are the signs of extreme instability. Forget about volume or percent gains. I’ll believe in a bull market if the Dow can rise 4 days in a row. I’ll believe it when I see it.

  10. babycondor commented on Jul 24

    Cherry I’m glad you are so confident of your analysis. Whose “plan” are you referring to?

    Calling these rallies “suckers” seems like sour grapes to me. The market is very volatile, trying to find a direction. I agree with BDG that the market seems dangerous and desperate, but I think larger forces are moving it than anyone understands. The headlines that attempt to pinpoint cause and effect are laughable.

    Looking at the Dow and the S&P, from the May highs to the June and July lows looks like a double bottom to me. The Nasdaq, not so much. Anyway, isn’t a double bottom supposed to indicate a trend reversal? Just asking.

  11. Paul Stiles commented on Jul 24

    The nasdaq still looks oversold to me. Although I’m long term bearish, maybe we can make a quick buck on a bet that SIRF, which reports tomorrow after the close, will get the same reaction that SNDK got this evening? Both of these stocks have been killed in the last few months.

  12. M.Z. Forrest commented on Jul 24

    It closed a little higher than the Thursday high. I think last week’s action and this week’s action are a result of not wanting to hold over the weekend. I have a hard time seeing any real direction coming out of this until the Israeli situation is settled. IOW, I’m preparing for a small bull run.

  13. Cherry commented on Jul 24

    Mercy child, sour grapes? You obviously don’t know whats coming. The bear market we have been in since 2000 is about really ready to roar. These “jumps” are signs of a major downtrend in the market that is nearing. Trying to excuse them as some great thing is not getting the “Big Picture”.

  14. Michael C. commented on Jul 25

    >>>The market charts are beginning to look like gun shots all over the place. Stocks gapping up and down 10-20% over a period of the past few months is not the sign of an orderly market. <<< I would tend to agree. And this sounds similar to why Barry went negative on the Japanese market - multi-hundred point moves almost everyday. However, a few things to note. 1) On 5/24 we were at SPX 1258. Two months later, today, we closed at SPX 1260. All that emotion, all that tension about the fed, oil, inflation, recession, war - and we are at exactly the same level. 2) While volatility rising is usually a negative for the market. Aren't markets usually most volatile at market bottoms rather than market tops? That said, it's anyone's guess as to whether this volatility is all a change of character from a bull market to a bear market or what normally occurs during bull market corrections.

  15. Bluzer commented on Jul 25

    I’m with the trading range crowd – for now. Look for a composite break above 2100 or below 2000 for direction. I’d bet on the latter – unless our bubble-blowing fed lowers rates in Aug. Further signs of slowing in housing and/or problems with Freddi/Fanny or another mortgage institution may be all the nudge they need.

    Go to gold, go to oils and go abroad. They’ll do relatively well – even in the instance of fed loosening.

  16. Arthur Hill commented on Jul 25

    Volume is supposed to be low or average in July and August. I would not worry about volume and instead focus on price action. Don’t forget about the low volume rally in August 2004. Cheers, Art

  17. Lord commented on Jul 25

    Some professor wrote a book on it, the name of which I forgot. It was a surprising finding. I believe because large volume was the herd while low volume was the specialists.

  18. Drew Yallop commented on Jul 25

    Market is too thin. No Bullish Percent Indices are bearish, the 200 and 59 day Ma’s are still weak, The On Balance Volume for SPX is still in a downtrend. There is no breadth here.

    Drew

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