Action today was choppy and overlapping just like last Wednesday and Thursday, take away message is also the same: wave 2 to a wave 1, in this case Friday's wave 1. The low today was right in the .382 level against Friday's rally. We need to turn up fairly soon from here to keep this proposed count in play.
I'd like to follow up on the discussion about market volume started on the weekend update. Here's an expanded and modified version of the MS Excel chart posted in that update:
The green line in the chart is a line graph of the daily closes on the NYSE going back to mid-July of 2003 through present. Scale for that is on the right side of the chart. The black line on the bottom of the chart is a 90 day moving average of NYSE daily total volume. Scale on the left side of chart.
When looking at this chart, understand that the volume component is a 90 day moving average, so the volume graph should be mentally shifted a little to the left to align it more accurately with price activity. What's striking in this chart is the change in volume pattern after the market top in 2008. For the first few years of the rally from 2003 volume steadily increased with prices, which is what one would expect. Then volume flattens out as the market nears its top and finally volume diverges against higher prices, this pattern also is what one would expect. Now look at the right side of the chart and note the volume pattern since the bottom of March, 2009. Here we see volume DECREASING as prices rise, followed by a volume spike accompanying this years sell off, and then (again) another pattern of volume decreasing as prices rise. This is very ominous. Granted, this study only looks at the NYSE, I don't have one which includes the NASDAQ, but my guess is that the pattern wouldn't change much if at all.
To understand the implications look at it this way: Let's say there was a fashion show by a famous designer where he showed off his new line of slinky black dresses. Let's also say that you hear that the full year's production of those slinky black dresses was sold out at that show. You'd be pretty bullish on slinky black dresses, wouldn't you? Now let's say that you later hear that there were 100 buyers at that show, but only 10 of those buyers submitted bids on those slinky black dresses. Now how bullish are you?
One final note. I believe this volume pattern is ominous, but its bearish message is more a long term consideration, i.e. it could be quite a while before the lack of volume translates into a down market. Also, it's entirely possible that volume will pick up at some point and make the pattern since March '09 irrelevant.
Thanks Al. Now I get it...
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