Volume continues to decline and prices ramp up (AfraidToTrade)

Technician Edge: What’s Up with Volume? Something’s Gotta Give!

Apr 13, 2010: 2:41 PM CST

I couldn’t resist taking a look at the lengthy and often discussed negative volume divergences in the S&P 500 (and other indexes), so I addressed that issue in today’s column at the Green Faucet’s Technician’s Edge Column with a post entitled:

“What’s Up (or down!) with Volume Lately?  Something’s Gotta Give!”

I show different perspectives in the article, including this view of the entirety of the 2008 Bear Market and 2009 recovery phases and compare volume in both stages.

While we once saw weekly volumes in the 30 billion shares per week range as the market bottomed in March 2009, we’re now seeing levels at and under 20 billion shares per week.

It’s not just that volume is declining since the March 2009 low, it’s also declining - as seen in the SPY chart below - from the rally off the February 2010 low.

Price has maintained a stable rising trend channel off the February 2010 lows, while in so doing, locking in a negative volume divergence all the way up.

While we used to see volume spikes in the 60 to 70 million per share level at the start of the rally, we’re seeing hourly volume peaks in the 30 to 40 million range.  All the while, average volume has declined.

I highlight five potential causes or reasons for the divergences - at least since the March 2009 lows:

• Leverage/Margin Considerations (less margin used)
• Shift from Trading to Investing (shift from day-trading to swing-trading or investing)
• Disgust with the Market (”I’m never investing or trading again”)
• Higher Share Prices Lead to Lower Turnover and Speculation
• Bankruptcies - both of individuals and financial companies

Visit my Technician’s Edge Column at Green Faucet for the entire article (and other news stories) and feel free to share your thoughts on why volume continues to go down while price continues to go up.

Corey Rosenbloom, CMT