We have been having rather tame volume. Birinyi's studies show that monthly declines in volume for the averages are bearish as of 2010ish. It would be interesting to update this, and to see if there is a seasonal tendency for volume to decline in Jan. Regardless, the forces that specialize in unleashing weaks from their trades will have to come up with something very volatile shortly to ply their trade.

Bill Rafter adds:

For decades our research shop has studied volume data, and almost all of that was a waste. Most of the fruitless effort was in trying to find significance in volume-weighted price changes. We also attempted to find useful seasonality in volume. Again, no happiness. Yes, there is a significant drop in volume between Christmas and New Year’s, but knowing that will not make you money. However we have learned and now use relative volume alone as one of our major indicators for buying both indices and individual equities.

What we found useful (and very much so) was that the best volume period to be considered depended upon whatever price history was relevant. This should not be shocking. For example, why would you look at monthly averages of volume if the financial world was upended only 10 days ago, or 70 days ago? Anyone averaging data over say a month, 50 or 200 days will be hard-pressed to find significance. This creates an interesting feedback loop in that we use volume to predict future price, but we use past price to tell us what volume data to use. Reminds one of Alice in Wonderland.

We found a similar parallel in analyzing intra-day data. Again, decades ago I came up with an idea for using intra-day vectors of O, H, L, and C to identify the future path inter-day. (I have previously posted information on it here.) It seemed so mathematically elegant that it had to work, but of course did not. And I gave up on it probably about 10 years ago, before I learned how to adapt periods under review. Recently I remembered the old work and tried it all over again with newfound success.


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