Hi,
>> Lower volume on declining prices, especially off all-time highs, signals impending price
increase.......Holders not willing to sell, buyers must pay more, price increases.....3-13-98 one of
lowest volume days in last 3 months.>>
Very seldom true. Just look at the volume levels of the stocks that have suffered severe declines (IOM,WDC, SEG etc.) If you plot the 30-day average volume line, you'd see the line declining steadily with the stock price. OTOH, volumes climb when price is climbing. An intuitive explanation for this is that when price is shooting up quickly, the greed factor kicks in, and many investors climb on board. Whereas, when price is declining, investors hold on (fear of crystallizing loss), and ride the stock all the way down. It is a good bet that many of the investors buying IOM at $16.50 at end of Nov/97 are still holding now at $8.50 (after split). In mid Feb/98 when CPQ was just about to decline, there were especially 4 days when volumes were way below 30-day average (e.g. Feb 24/98 - 6.4 million closing at $34.31). In a slow price erosion, low volume does not indicate a bullish tone. However, in a complete break-down of price, volume is high (panic selling).
Perhaps you're familiar with Stan Weinstein, a well known wall-street technician. In his book (Secrets for profiting in bull and bear markets), he wrote (in the chapter on shorting):
" Now, pay careful attention! Volume is crucial when we're dealing with upside breakouts on the buy side. You should never buy a breakout that does not have confirming volume. The short side is 100% different. While it's nice if volume does pick up significantly and confirm the downside breakout, volume is not a necessary ingredient for a winning short sale! It takes power to make a stock rise, but a stock can truly fall of its own weight. Note how low volume was at that point B (a chart illustration in the book). This didn't stop the stock from tumbling close to 90 percent!"
D. |
