I’m often told that if a stock or index is rising on lower or modest volume then the move is probably false or a fake out is about to occur. I mostly disagree with this notion, as it is times of reversals where big volume prints are often seen.
High volume events are often turning points in trending markets. As we saw recently just after the Brexit decision, a massive volume print occurred as many who were scared to hold risk assets decided to purge and toss them aside. This created an opportunity for the big money – the smart money, to enter and pick up shares in stocks that were possibly overvalued just 48 hours prior.
Take IBM for one example, which fell an amazing 10 bucks a share over the two days on very heavy volume but has quietly returned to the levels just before the fall. How about Google, which plunged to levels not seen since last October, but the stock has recovered nicely after a giant volume selloff.
Since the market plunged in late June the volume levels have been ‘okay’ and not enormous, and that seems to bother some folks. Frankly, as we are at/near all-time highs and if volume starts to swell again, that would have me heading for the exits – for in that case the ‘dumb money’ is feeling left out, and when that happens the market top is not far off.
For now, that is not the case – we have a skeptics who are not convinced the market is in bull mode.
I won’t try and time that event, but over history that has been when severe market declines ensue. The last case being Feb-Mar 2000, where a nasty recession followed massive drops in the stock market — you guessed it, at all-time highs.
