Does Trading Volume Differ on Up or Down Days? Does It Matter?

Well, that certainly was bad, wasn’t it? Once again, the massive de-leveraging trade, taking advantage of the higher prices from last week, whacked down stocks.

Once again, there was a big sell-off at the end of the Monday. The S&P 500 fell 4.0% from the 2:52pm top tick into the close.

But that is the new normal, is it not? This is forced selling.

Volume was not particularly heavy Monday, however. Ending composite volume was 5.8 billion. By comparison, average volume on the three days before Thanksgiving last week - usually a low volume week - was 6.7 billion, with last Monday and Tuesday substantially higher than this Monday. Monday’s volume was about equal to last Wednesday’s volume of 5.6 billion, the day many traders took off to get an early jump on the holidays.

Monday’s volume was also lighter than average since the market carnage began as volume has averaged 6.4 billion since September 1. Monday ranked in the 39th percentile of all volume days since that time.

Interestingly, since September 1, volume has been heavier on up days than on down days. Up volume has averaged 6.6 billion while down volume has been 6.3 billion. However, there have been 37 down days and 27 up days.

Since the intra-day reversal on October 10, when the market traded 11.1 billion shares, volume on up days has been 6.3 billion while volume on down days has been 5.9 billion. There have been 12 down days and nine up days.

On days with at least a 3% move, since October 10, volume on up days has averaged 6.9 billion while volume on down days has been 6.1 billion.

Breadth was horrible at 80:1 on the downside. However, cumulative breadth over the past six days has been 2:1 on the upside.

The biggest volume days since September 1 was on October 10 with 11.1 billion shares traded. The market fell 1.2% that day but in fact was down as much as 7.8% intra-day before rallying into the close. The second heaviest day was on September 18, with volume at 10.2 billion. The third heaviest day was the next day at 9.3 billion. On both days, the market was up 4.0% and 4.3% respectively. The fourth heaviest day was last week on November 21 at 9.2 billion. The fifth heaviest was on September 16 as the market rose 1.8%. Thus, the heaviest volume days have either been on the upside or was the intra-day reversal on October 10.

Frankly, I do not know if this means anything, but it is interesting.

Comments

[MartynStrong:]

Cap markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable. By using the greater computer power of today we can have a much higher turn over of cap in the cap market. This higher turnover will make the market harder to fix or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day. So now that we have the compute power to provide for all these transactions that will smooth out the market how to we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of 7 days or more. The likes of Yahoo Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent). A system like this will make the financial markets work as smoothly as the local fruit market.

2008 Dec 02 03:07 AM

[Steven Hansen:]

martynstrong - is there some evidence you have that higher volumes result in lower volatility? why not do away with stocks altogether and just trade options? or maybe just have the government set the price of each stock, and tell the company how much profit it is to make. it worked for the soviets did it not?

2008 Dec 02 04:28 AM

[Moon Kil Woong:]

Actually, the market is downward skued. It has been for some time. That means over time the market is favored to fall on any given day. Usually the market is upwardly skewed, meaning normally the market rises.

Taking it a step farther, in a normal market when the market goes the other way the market is favored to fall on higher volatility than it rises with higher volume traded. So in this case it is normal that upswings are greater than downswings and on higher volume.

I hope this helps explain things for you. You may be saying, well that is weird, the market is clearly not healthy. My response would be, "Absolutely right on that point!"

2008 Dec 02 05:49 AM

[airbass:]

kk

2008 Dec 02 08:47 AM

[Smarty_Pants:]

Maybe the naked short sellers were covering up and providing fuel for the rallies.

After all, they can't run around naked all the time now, can they?

2008 Dec 02 02:01 PM

[Moon Kil Woong:]

Haha smarty pants. How about the naked longs? They got caught with their pants down and are still getting spanked.

2008 Dec 03 04:16 AM

[MartynStrong:]

On Dec 02 04:28 AM The hand wrote:

> martynstrong - is there some evidence you have that higher volumes
> result in lower volatility? why not do away with stocks altogether
> and just trade options? or maybe just have the government set the
> price of each stock, and tell the company how much profit it is to
> make. it worked for the soviets did it not?
>
The NYSE has 4 hours after closing and 4 hours before opening when there is electronic trading. At these times the volumes are much lower and the volatility is much higher than the normal daytime trading.

2008 Dec 11 03:43 PM