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Where Has All the Volume Gone?
By: Zero Beta   Thursday, April 10, 2008 10:21 AM
Symbols: AA, BSC, HRS
This post, interestingly enough, is almost exactly a year old, and observes that the same thing happened last year at this time.

From The Big Picture,

A few weeks ago, someone responded to a discussion about economic slowing with the following comment: "Price and Volume tell all."

Fair enough: "What has VOLUME been telling you over the past few weeks?" I asked. Given the run off of the March lows has come on decreasing volume, its an important question.

Barron's resident technician, Michael Kahn picked up on the same idea in a recent analysis:

THE STOCK MARKET HAS PUT on a nice show with the Dow Jones Industrial Average rising some 5.5% off its March 14 intraday low. Along the way, it has ignored several technical barriers and even saw one major index, the New York Stock Exchange composite, set a new closing high.

But from the start of the rally through this week's action, trading volume has been conspicuous by its absence. Without volume, the market will soon run out of fuel, and under such conditions we cannot expect it to run much longer.

He posts the following chart, which I will compare to a similar chart from this year below:

NYSE 2007

NYSE 2008

Although each chart has very different patterns preceding the low volume rally, both charts look very similar going into it and throughout it.  The 2007 rally continued until July, when Bear Stearns started its implosion.

At the time of his post, Barry wrote,

We have noted a similar issue with overall market volumes. Even worse than low volume is the increasing volume during selloffs, and decreasing volume during rallies. This suggests to me that we are now transitioning from a period of accumulation (institutional buying) to a period of distribution (broader selling).

It seems that this same phenomena is going on now.  The rally continued through May and June, but we all know what happened next.  If we see volume start to pick up as the market rallies higher, then we may be dealing with a different animal.  In all fairness it is still too early to tell. It seems, just like a year ago, we are in a transition phase.  Last year the late 2006 rally was ended with the selloff in late February, beginning the transition phase last year.  Eventually a new phase begun with another high volume period, in which price declined and evolved into a more prolonged selloff into the lows of last month where that phase perhaps ended.  I think it will be important to see what the price action is when volume does once again pickup, because that may be key to the next extended phase for the market.

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