Simit Patel

Well folks, you would expect a permabear like myself to be bearish, but here is a video I found with some technical analysis of the Dow comparing the current situation to the crashes that occurred during the Great Depression. The author notes that the rally we've been seeing in US equities is on low volume -- a point frequently cited by our own Ektrader (NOTE: see Ek's clarification).

Check the video and share your comments in the section below.

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Shootanappleoffmyhead

A low volume rally after a crash is much different than a low volume rally after something far less cataclysmic. This could easily be attributed to the non-demand for market participation after so many people got burnt the fk up during the crash. Two things stick out to me.

1. Due to my first point, there is no way to tell on what volume the market is operating. Any volume analysis finds it validity in the market volume potential, which at this point has been obscured by a very large event that could have effected market volume potential. So we can not accurately say "low volume". "low" relative to what? A pre crashed market?

2. The rally has demonstrated uncanny resilience through this "low volume" rally. That says to me that this is no low volume rally at all, but possibly a high volume rally.

Shoot.

Jason Rogers

My thoughts (and why I disagree with Shoot )...

The trend in the volume itself is what's important rather than being able to compare it on a relative basis with an absolute volume number. Measuring the relative volume from one period to another will be different as more investors have entered the stock market today compared with the 1950's for example. What would be the same is the general concept of a strengthening bull market occuring along with increasing volume. There needs to be more buyers continuously getting into the market to push prices up.

I find the chart disturbing also.

The only thing I can think of that could justfiy a lower volume and a continuing uptrend is that some new force is at work here. Maybe a disappearance of day traders or high frequency trading, and a core group of long term traders moving their assets back into equities on a stable basis.

Cristian

Shoot has right 300%, but this is the traders dilema, they forget to use fundamentals in their analysis, so a sharp decline in the world indices would mean a strong deflationary scenario, and in this case the FED will could not cut the interest rates any lower in order to stimulate the economy, so a decline under the march lows 99% probability would mean the FIAT Money bankruptcy, the bet that all the central banks did is that inflating the economy, investing in the toxic assets, encouraging the production, the employment, the financial institutions and other stuff will be able to walk on their legs again and start to pay the debts, otherwise a bankruptcy of todays modern money mechanics would mean that the gold will become the benchmark, the buying power will be very weak, and the recovery is seen like in 20-30 years, the average american will have to save 20-30% of his salary every month for a few decades, without any investment and I don't believe that this scenario which was pointed out by that guy is plausible.

Simit Patel

i agree totally. we're seeing volume divergence here (rising prices, falling volume) which i think is ominous, particularly when one considers fundamental factors (rising deficit, declining demand for treasury bonds) and cyclical factors (october).

interesting about the idea of a new force at work. i think that very well could be the case, as this crisis has a number of unusual aspects and there is still a lot of confusion/murkiness about what is going on.

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Shootanappleoffmyhead

This is an absolutely ridiculous statement and I am frankly surprised it came from one of our "education partners". The trend in volume does mean something, but only in a setting where the amount of available participants has not drastically changed. If this happens any meaning derived from a trend of volume, that being an evaluation of the volume state relative to past volume, is highly illegitimate.


This is true, but declining volume after a crash or market purge of any kind does not disprove this or even indicate that this may not be happening in any way. In short, the former evaluation of volume was based entirely on what the market was offering that it may previously not have been, or adversely, began to do in excess. This method of evaluation goes right out of the window when there is an upset in equilibrium. So what I am saying here is that we cannot accurately use the current volume scenario as a conventional low volume rally scenario as we could in a setting where the amount of potential market participants has become ambiguous. Someone who understands markets please step in here and help me out! hehe.

Or how about the fact that it is not low volume at all, it's just that your concept of relative volume has been skewered by the higher volume of the selloff, which it is important to remember was practically just the high buying volume of the past equalizing during the crash, and now we start over and past volume means less and less as it equalizes more and more.

This is all child's play sir.

Shewt

Cristian

This is outrageous, it's crystal clear that todays markets are atypical, and classic technical analysis is not enough, before to jump in and say that x or y is right or wrong please go to your text books and study, and after you can make your own opinion about the markets we will talk further.

Shootanappleoffmyhead

Who are you talking to?

Cristian

to those guys that says shrinking volume should engage sharp down movment for the dow, i said that Shoot is 300% right just above these comments

Shootanappleoffmyhead

AHA! THank you Cristian. Anyone else want to chime in? This could be a nice battle. But just know beforehand that I am right.

No, but seriously. Does anyone else think that using volume in this scenario is a feasible method? Why or why not?

Shoot.