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Thursday, October 1, 2009

Market Thought... volume

Technically speaking I have seen chatter that the reduction in volume for this rally is indicative of a false rally. IMO, that is bullshit, at least for this particular market rally.

We entered a period of an unprecedented market collapse, and de-leveraging that would force market volumes to be much higher than even above normal scenarios. As the market/economy stabilized, and forced de-leveraging ended, volumes naturally reduced.

The chart says it all. Volume was higher during the collapse, and was higher for the rally, investors just have to factor out the forced de-leveraging volume on the way down. IMO, that volume is false, and give the wrong impression that this rally is predicated on low volume. When in fact, looking before the market collapse, this clearly not the case.

In my humble opinion, start entering 'initial' level positions. We should trade sideways for a few weeks, but the trick is to buy at the low end of the channel trading.

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