Saw this the other day on the Big Picture Blog (here)
Low Volume Is Nothing to Worry About
By James Bianco - August 30th, 2012, 8:30AM
Click to enlarge:
MarketWatch.com – Low volume? Forgetaboutit!
Repeat after me: Low trading volume is nothing to worry about it. Of course, repeating this mantra doesn’t mean there’s nothing else to worry about. But, I can fairly confidently say: If the stock market does decline from here, it will have nothing to do with the recent low trading volume. That’s because volume tends to dry up every summer, like clockwork, and especially in August — when the greatest number of investors and traders take their vacations. So it is hardly a surprise, or particularly bearish, that it has done so this year as well. ( Read my July 10 column, “Should you sell a dull market short?” ) Yet memories are short on Wall Street. So, also like clockwork, traders in recent weeks have been taken by surprise by the low trading volume — and they think it’s a bearish omen.
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MarketWatch.com – Low volume? Forgetaboutit!
Repeat after me: Low trading volume is nothing to worry about it. Of course, repeating this mantra doesn’t mean there’s nothing else to worry about. But, I can fairly confidently say: If the stock market does decline from here, it will have nothing to do with the recent low trading volume. That’s because volume tends to dry up every summer, like clockwork, and especially in August — when the greatest number of investors and traders take their vacations. So it is hardly a surprise, or particularly bearish, that it has done so this year as well. ( Read my July 10 column, “Should you sell a dull market short?” ) Yet memories are short on Wall Street. So, also like clockwork, traders in recent weeks have been taken by surprise by the low trading volume — and they think it’s a bearish omen.
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Note that the 10-day average of composite NYSE volume is at its lowest non-holiday level since October 2007 and it is still falling.
I have seen simliar studies casting dount on the validity of volume as an indicator. However, I never seen a study comparing volume at certain inflection points. I guess I will have to break out the screens once I get back to real world after the holiday.
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