Charles, we're talking about two different situations, I believe. In a capitulation situation, you have a day or so of massive volume as everyone who has already lost money (either long investors in a declining situation, or shorts and people who were left behind in cash during a bullish run) just gives in and says "I can't let myself be overrun by this train -- it just ain't gonna stop!" After a downward capitulation, more reasoning (less emotional) investors evaluate the situation, and buy in at rock-bottom prices, beginning the next rise. After an upward capitulation, all the emotion-based investors have spent all their cash, some of the reasoning investors want to cash in their nice profits, and the absence of buyers results in a decline.
Another kind of high volume that indicates a top is high volume churning that doesn't move the market -- where people are still pumping in money, but just as many people are selling, so the market acts like a big drunken elephant. This is what the NYSE did in August 1987, and also what it was doing last summer as well (see some of my old commentaries on my web site).
What I'm talking about with respect to SUNW is a longer term volume/price trend. This is according to the Forbes stock market course I took in the 1980's when I first started investing. The end of a bull market (in stocks, real estate, art, beany babies, whatever) is often foreshadowed by a decline in volume as prices keep going up. In a healthy, growing bull market, you have a rising volume pattern, as more and more investors become interested in owning the investment.
There may come a point where prices are still rising, but the volume has begun to drop. This indicates the possibility that at the ever higher prices, fewer and fewer investors are interested in purchasing the investment -- interest is waning. The prices keep rising because, even though there are fewer participants in the market, they all have faith, they all KNOW the price of this particular investment will continue to go up and up and up. But at the same time, the pool of available buyers is shrinking. This then sets the stage for a wicked bear market if suddenly a large number of investors decide it's time to take profits and they suddenly find no buyers.
This is what happened in the Northeast housing market starting in 1989 or so. Home sales dropped, but prices were still going higher. Then, in 18 months or so prices dropped by 30% or more.
So -- this pattern, prices continuing to rise as volume eases downward, clearly stands out if you look at the SUNW chart. I'm not predicting anything -- just thought I'd let people know what I noticed...
Kevin |
