Wednesday, February 13, 2013
Low Volume Favors The Bulls
In the last few days, the market has recorded incredibly low volume. In the past, this has favored the bulls (as explained in this post). The chart below is the etf $SPY (which represents the S&P 500). I have attached the volume below price, attaching 50-1 Bollinger Bands to volume. When, volume is below the lower Bollinger Band, that is interpreted as very low volume. With two red arrows, I have highlighted when it occurs during the holidays; we see this occur during Thanksgiving as well as after the New Year. During the month of August we saw a streak of incredibly low volume (below the lower Bollinger Band). During that time the market was in a very smooth uptrend. This is important to note because people have a tendency to distrust low volume moves, but I don't think that matters as much as people think it does, as shown in the chart. The last few days we have seen anemic volume as well (circled in black), and the market is slowly making news highs. Beware in thinking that this move won't last due to low volume, as the past has shown this does not matter.