Chart of the Week: Recent Volume Bottom Dooming Stocks?

This week’s chart of the week could easily chronicle the recent decline in volatility, but that’s a story many pundits have already flogged to within an inch of its life, so it’s time for something else. Like volume.

The volume story rarely gets the air (electron?) time it deserves, so I have plucked out a chart in hopes of being provocative.

In the StockCharts lexicon, $NYTV is one of several measures of NYSE volume. Specifically, it is the daily NYSE volume figure reported by the Wall Street Journal and the one I have chosen to standardize on for my own charts. The chart below (click to enlarge) uses the NYTV numbers to plot NYSE total volume (dotted black line) against the backdrop of a solid gray area chart for the SPX, with data going back to May 2008. To smooth out some of the fluctuations and holiday-induced dips in volume, I have added a 9-day exponential moving average (EMA) as a solid blue line. I have also included a 10-day rate of change (ROC) study below the main chart.

While readers will undoubtedly draw their own conclusions from the chart, I have chosen to highlight three bottoms in the 9-day volume EMA. The first one occurs in late August 2008, just before the Lehman-induced September swoon. The second bottom is from late December, just before the January top. With Friday’s late volume surge triggered by the Russell index reconstitution, the spike in volume is almost certain to confirm that the mid-June volume drought will now become another bottom. The dip in volume coincided with the most recent top in the SPX and it is possible that for the third time in 1 ½ years, the volume bottom could signal a multi-month drop in the SPX.

[source: StockCharts]

Comments

[ain't no fo...:]

I've been watching the extremely low volume over the past 2 months or so and initially thought it was due to the fact that the main street investors were pretty much on the sidelines after the beating they took last year, and institutional volume wasn't as healthy as one would expect.

I have begun to think there may be a deeper reason - the emergence of dark pools run by the same suspects as usual, namely the "bank holding companies" such as GS and JPM who pretty much own the rest of the visible (I won't call it transparent) market as they act as proxies for the government.

I realize dark pools should be reporting transactions and volume to the relevant exchanges, and that there are moves afoot by various regulators to make sure they do. I don't believe for a second that they actually are reporting, however, because it goes against their modus operandi... the term "dark pool" alone should make that point abundantly clear.

So it may be that some traditional volume measurements are not as reliable as they once were, that the concept of transparency is once again a mockery, and that there is plenty of quiet money running into the markets that is not being picked up by traditional means.

Fine. But if we don't see it coming in, why would we expect to see it coming out, until its too late?

Jun 29 01:16 PM

[CLH:]

WP Dragon---You were probably right the first time. When you start blaming spooks (dark pools), you lose me. Im quite happy with the low volume. As you said, I believe it was caused by the 2008 panic. It will be many years before the frightened people will return and I say good riddence. Most of the investors sold at the exact bottom leaving the juicey fruit for those who didnt sell.

The indexes are up nearly 50% while others just watched and made no money.

Jun 29 03:11 PM

[ain't no fo...:]

CLH, you should do some homework then, because the dark pools are very real, growing rapidly, and gaining increasing attention from the regulators, including Mary Shapiro at SEC. They're hurting liquidity, widening spreads, they are NOT transparent, and their pre-trade messaging (IOI's) create a non-level playing field at the expense of the retail investor.

www.moneymorning.com/2.../

www.reuters.com/articl...

And as usual, JPM and GS are two of the biggest players, altho most major "bank holding companies" are playing.


On Jun 29 03:11 PM CLH wrote:

> WP Dragon---You were probably right the first time. When you start
> blaming spooks (dark pools), you lose me. Im quite happy with the
> low volume. As you said, I believe it was caused by the 2008 panic.
> It will be many years before the frightened people will return and
> I say good riddence. Most of the investors sold at the exact bottom
> leaving the juicey fruit for those who didnt sell.
>
> The indexes are up nearly 50% while others just watched and made
> no money.

Jun 29 03:24 PM

[Boxed Merlot:]

Your referenced sources indicate an additional12% NYSE, 18% Nasdaq and 9% overall US volume is occuring Daily that's not included in the traditional volume reports.

"'If they do something that makes the dark pool light and eliminates the reasons for institutions to trade on our vehicles, that would be a disaster for a hundred million people out there,' said Seth Merrin, chief executive of electronic marketplace Liquidnet, a dark pool used by buy-siders."

Seems like you're right, transparancy has no value if the lights remain off.




On Jun 29 01:16 PM wpdragon wrote:

> I've been watching the extremely low volume over the past 2 months
> or so and initially thought it was due to the fact that the main
> street investors were pretty much on the sidelines after the beating
> they took last year, and institutional volume wasn't as healthy as
> one would expect.
>
> I have begun to think there may be a deeper reason - the emergence
> of dark pools run by the same suspects as usual, namely the "bank
> holding companies" such as GS and JPM who pretty much own the rest
> of the visible (I won't call it transparent) market as they act as
> proxies for the government.
>
> I realize dark pools should be reporting transactions and volume
> to the relevant exchanges, and that there are moves afoot by various
> regulators to make sure they do. I don't believe for a second that
> they actually are reporting, however, because it goes against their
> modus operandi... the term "dark pool" alone should make that point
> abundantly clear.
>
> So it may be that some traditional volume measurements are not as
> reliable as they once were, that the concept of transparency is once
> again a mockery, and that there is plenty of quiet money running
> into the markets that is not being picked up by traditional means.
>
>
> Fine. But if we don't see it coming in, why would we expect to see
> it coming out, until its too late?

Jun 29 04:31 PM

[Boxed Merlot:]

On Jun 29 04:31 PM Boxed Merlot wrote:

> Your referenced sources indicate an additional12% NYSE, 18% Nasdaq
> and 9% overall US volume is occuring Daily that's not included in
> the traditional volume reports.
>
> "'If they do something that makes the dark pool light and eliminates
> the reasons for institutions to trade on our vehicles, that would
> be a disaster for a hundred million people out there,' said Seth
> Merrin, chief executive of electronic marketplace Liquidnet, a dark
> pool used by buy-siders."
>
> Seems like you're right, transparancy has no value if the lights
> remain off.
>
>
In fact if the hundred million people reference is even close to accurate, sounds like another "hands off - too big to fail" industry will be clamoring for public assistance if true market and / or regulatory enforcement allow / cause their demise.

Jun 29 06:15 PM