Tuesday, November 13, 2007

Big Rally, Small Volume

Today's rally was staggering - with the Dow, S&P, and NASDAQ up 2.5%, 2.9%, and 3.5% respectively. But how much participation was in the move? Is this simply a relief rally from the past four sessions of selling, or the beginnings of a new advance?

100 million fewer shares traded on the NASDAQ compared to yesterday, but volume was close to its average over the past few weeks. Today was also a 9-to-1 up day on the NYSE and NASDAQ, where 90+ percent of the total volume traded was attributed to advancing issues. However, the number of issues making new 52-week lows outnumbered those making new highs by a wide margin on both exchanges.

The 9-to-1 up day is encouraging but hasn't been a reliable indicator of a new uptrend by itself. However, the lack of total volume and the number of issues making new lows is cause for concern. Time will tell, but this appears to be a relief rally...

5 comments:

StLCardsFan said...

Josh,
Isn't arguing that a low volume day is less powerful than a high volume day like arguing that some shares are more important than others? I would think that any share traded on any day has the same value as any other share on any other day. A share traded is a single investor's statement on that particular security (and maybe by extension, the market too). Why should one share traded be more important than another?

Josh Ulrich said...

I'm not making a distinction between the shares traded. I agree shares traded today have the same value as other shares traded on a different day.

A share traded is a single investor's statement on that particular security...

If the above is true, would you agree that more shares traded is a larger statement of investor sentiment (when combined with price changes)? If so, you agree with the essence of my reasoning.

StLCardsFan said...

Could be, but you are assuming that every shareholder has the opportunity to trade. What about long-term investors, passive (savings plan) investors, pensions, asset allocators, restricted (blacked out) accounts, and traders in the hospital? Not everybody gets to trade every day. I'd agree with you about daily volume having significance if every shareholder had the opportunity to trade every day.

Josh Ulrich said...

Long-term, passive, and asset allocation investors have the opportunity to trade, but have - a priori - chosen not to.

Those investors who are truly restricted from trading are few relative to those who are able to trade. It is improbable the restricted traders could change market activity had they the chance to trade. Thus, more volume implies greater consensus of the current prices.

StLCardsFan said...

Yes, more volume implies greater consensus by active participants of the current prices. So, what we're really concerned with is marginal movements in volume. But, what from what margin? Is there so natural rate to work from, or a long term average, or total shares outstanding?