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It Takes Volume To Be Bullish

A market that rises without real demand is a market that is whistling past the graveyard.

Shares battled back for the second session Monday following last week’s harsh selling. But the rally coincided with tepid volume, doing little to instill confidence that there is enough demand to sustain the seven-week advance.

After a market puts in a low and begins rallying, it is preferable to see that rally occur on strong volume. This is a sign that large investors, the lifeblood of any durable advance, are on board. However, after a market advance goes roughly six to eight weeks without at least several major accumulation days showing up, it is time to be concerned about the sustainability of that rally.

This lack of market volume was evident just prior to the end of the 2002-2007 bull market in mid-October 2007. It was also apparent during the six weeks leading up to the May 2 peak in the Standard & Poor’s 500 Index

The adage “it takes volume to put stocks up, but stocks can fall of their own weight.”

A brand-new bull market will typically see emerging leaders break out of bases and move up 20%-25% or so before pausing to digest their gains.


Adapted from: 
Demand wanted
By Kevin Marder
Sept. 27, 2011, 12:01 a.m. EDT

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