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8 Comments
Hi Bill,
Can you elaborate a bit. I assume you’re trying to illustrate a breakout above the channel line formed by bull peak and the December highs (red line). I’m not sure what the significance is of touching the trendline formed by the bull market low (green line)? Also, what’s your take on the volume January volume spike. Jason Goefert views the recent low levels of volume as bearish. He also is concerned about the Nasdaq/NYSE Volume Ratio which is signaling a speculative tone to the market.
Chart-chompers could interpret the bottom of the green line as possible resistance, or a return to trading above the green line as a resumption of the longer-term trend upwards.
January was a capitulation low and a significant bottom. You don’t do double average daily index volume and print a huge bullish reversal candle for nothing.
I don’t know who Jason is fooling (probably himself?), but recent volume has clearly been ABOVE the 250-trading-day average and ELEVATED relative to historic trend. “Low” maybe only relative to a CAPITULATION BOTTOM and FEAR-FRAUGHT DOWNTURN, but that is TO BE EXPECTED if January’s action was capitulation. Look at the “low-volume recoveries” in mid 2006, or early 2003.
I don’t follow Nasdaq/NYSE volume ratios. I would be interested in seeing any stringent data analysis anybody has on it, but I will post tomorrow on how many metrics one really needs to follow.
I see in my VIX/actual volatility ratio a metric which appears overconfident and complacent, but (1) overwhelming evidence of a bottom outweighs that in my mind, and (2) I would be more worried about the potential for complacency as new highs were hit than I am now about a relative complacency coming off the bottom. Fear means more after it’s expected (after declines and new lows); greed means more after it’s expected (when the market is making fresh highs).
I wish I could link to Goefert’s posts along with all his graphs and charts. I’ll try to sum up his volume observations here.
- High volume is usually bullish and low volume is not (vs. S&P 500 over the past 30 years)
“High” means that 10-day average volume was more than 25% greater than 200-day average volume; “low” meant that 10-day average volume was more than 15% below 200-day average volume.
- In the study Goefert presents, a “bull market” is in effect anytime the slope of the S&P 500 was positive; a “bear market” was when the slope was negative.
- the best possible scenario for future 10-day returns in the S&P was when we saw high volume during bear markets. To your point, the S&P averaged +3% over the next couple of weeks, compared to a random two-week return of +0.1% during that time and the index was up 83% of the time. (51% was average)
- The worst scenario was low volume during bear markets. That’s what we’re seeing now according to Goefert. Only 42% of the time did the S&P show a positive return (average return of -.7%) and badly lagged all other scenarios as well as random periods.
Yesterday he posted this table of the Nasdaq/NYSE Volume Ratio:
Historical S&P 500 Returns When Nasdaq Volume is 1.85 Times Greater Than NYSE Volume (current situation)
5 Days Later 10 Days Later 1 Month Later 3 Months Later
Avg Return -0.3% -0.2% -1.0% -5.2%
% Positive 42% 44% 42% 24%
That comment has more issues than Playboy. It’s also inherently difficult to present his arguments without a link, and difficult for me to discuss them when I’m unsure of what his meaning is.
Allow me to explain how difficult this is with a few bullet points:
Timeframe for the Naz/NYSE table? Number of instances tracked? Results and number of instances at the other extreme? How many of those instances were the result of the tech bubble, and what is the non-tech bubble sample and what does that look like?
By Goefert’s definition, as you state it, volume is NORMAL. The 10-day average was +1% above the 200-day average as of yesterday. It’s been in a NORMAL range (his definition as stated by you) since the March price lows. If that’s his definition, he shouldn’t be concerned about volume. Either his presentation now that it’s “low” is out of whack with his own definition, or your presentation of his argument is flawed.
To develop a slope, I need a rise and a run (as a roofer would say, although they’d probably say Necesito un lugar y una carrera. Slope over what timeframe and how defined (simple return, slope of regression line, position relative to a moving average, etc.). Without a definition, I can’t evaluate it.
By his definition of volume, and assuming his definition of slope is simple return somewhere between a week and three months, we’re in a bull market with normal volume. Assuming his definition of slope is down right now, we’re in a bear market with normal volume. Regardless, we go back to volume by his definition (as you’re presenting it) as NORMAL.
It’s so difficult to adequately address his arguments in the comments without a quoted piece of his material to work from, and unless his quoted material adequately defines some terms, it still won’t work. I hope those points above clear up how hard it is to convey the ideas without his material to work from, or his participation.
Bill,
I just posted a chart on my blog that might help illustrate what Goefert means by “high” and “low”. Basically he’s referring to short term deviations from the mean.
What Jason means by slope is simply whether the 200 day moving average of the S&P 500 is rising/falling.
I don’t believe he gives a time frame for this Naz/NYSE study but he usually tries to include as much data as he can when he reports on studies. Btw, Goefert doesn’t really do much work with volume because he believes it is of limited value unless you’re evaluating individual securities.
Hope the chart helps.
when i first saw Bill’s chart i posted a tongue-in-cheek rebuttal chart of the same index leading to a different conclusion… now this whole conversation is getting very deep. I only look at price action, the 200 day moving average (which is a derivative of price action) and very infrequently the volume.
In my opinion, two “truths” hold, 1) the S&P is in a bear market and is in a counter trend rally. nothing changes till we manage to achieve a higher high on the long term chart, we are ways off.
2) Many sectors/sub-sectors are in strong trends, either higher or lower, so there is no need to trade, nor worry about, the S&P.
Born, define “bear market.” ROFLMAO!
If you use a definition like “the 100 day ema is below the 180 day ema,” then it’s been a bear market in the S&P 500 for a few months now.
However, there’s always a bull market somewhere!
indeed, the S&P has been in a bear market for several months now. my “definition” is based on the 200 day ma and the price relative to the average. if the average is moving higher and the price stays mostly above the 200 day ma then we are in a bull market. this has been the case for several years. When we failed to break above the previous higher high, in October of 2007, we had the first indication that the party may be over. right out of Trader Vic’s book describing the 2B trend end.
In January when we broke below the Nov. lows and also the 200 day started pointing lower that was the confirmation that Oct was the top and that we have been in a bear market since that top.
In a bear market we have to assume that every rally is a counter-trend rally till we either form a base and start a new bull or we take out the previous high and resume the old bull.
On the intermediate time frame we have been marking higher highs and higher lows since Mar 17th, which is a good trading rally. But now we have come up to the down-trending 200 day MA and got turned away, thus it is my believe that we head lower from here and take out the March lows.
However, as you have said, and as you have shown in your rotational portfolio and your own trades, it does not really matter what the S&P500 does because there is always a bull market somewhere.