BarroMetrics Views: Volume?

Yesterday, Paul asked: “Without the knowledge of Dark Pools’ liquidity, is traditional volume analysis useful/meaningful?

The alternative method taught in HOS would be a good reasonable replacement?”

Paul et All,

I have no way of assessing the impact of the volume done by Dark Pools. I do know that in this environment, using traditional volume/range analysis, I continue to return a positive edge. Indeed, my returns in this quarter have a higher average than most years. So, I’d answer ‘yes’ to your first question.

As to the second, also a ‘yes’ with the same proviso I make at HOS classes: the alternatives are not as robust as /range analysis; I’d use /range analysis where possible.

Paul’s question reminded me to sound a qualification to my recent S&P analysis.

Regular readers of this blog will know that for much of 2012 until the recent decline, I advocated a policy of ‘long or out’ i.e. I was unwilling to short the S&P. The reason was QE had placed a floor under US Stocks; in this environment, traditional volume/range analysis had to be amended: it was fine with bull signals at support, less so for sell signals at resistance.

Figure 1 shows what I mean. In this chart you have the S&P bull run since 2008. Notice the rectangles marked 1 (blue), 2 (brown) and 3 (green). At each stage volume declined. Even if we compare down volumes, we see the same phenomenon.

The analysis I did last week assumed that the market would view an end to FED intervention. BUT, this assumption of perception may be wrong. In reality the FED did not say it was stalling QE; is said that it would stall QE IF the data warranted it. Since recent data is mixed, we may well see the bulls predominating with the view that “QE will end someday, but not yet”. On that basis, the S&P could continue its grind up.

I do take the view that Sept 2013 will prove to be the high in US stocks marking the beginning of the multi-year down swing that will breach 666. For this to happen, we need to see a withdrawal of the belief that the FED can and will save the market from any substantial decline.

I take the view that if the FED June hint (that the QE party may be coming to an end) is not the event that ends the ‘assumption’, then, we’ll see a bullish conviction close above 1620(basis Sept). A bearish conviction below 1555 will signal that the participants now believe that QE has ended. We’ll see…….


FIGURE 1 S&P Daily Normalised Volume

Charts through the courtesy of Market Volume

One thought on “Volume?”

  1. Hi Ray,
    Thanks for your enlightenment.

    1. For you it is the “volume/range” analysis that give you a positive edge!

    Traditional volume analysis uses volume to “confirm” price breakout.
    But Daryl Guppy mentioned that their research indicated that volume was no longer an important identification or verification feature (for Davas Box price breakout, page 158 – Guppy Trading).
    – So, volume/breakout analysis is not important lah! lol!

    2. You wrote: “I advocated a policy of ‘long or out’”

    For ETF traders,additional reasons to long:
    a. For equity ETF, there is the stock replacement mechanism that drop the losers and add the winners. Index could rise even when the overall market is down.

    b. The long position traders could dividend hop to skim the dividends payable.

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