Thursday, September 03, 2009

The quiet before the storm: Volume will pick up to the downside in the coming weeks

This is the last official week of summer vacation as school starts or has started for many. The stock market should pick up trading volume in a significant way. For example, in the 6 month Chart of the Dow above, you will notice that while the price went up, volume was declining significantly. When price rises and volume declines on a stock, it is a very bearish sign according to experts such as Martin Pring, who wrote the book, "Technical Analysis Explained." That is why it is so easy to predict this market correction this fall.

I wrote a piece back on August 23rd titled, "The Put to Call ratio hit an extreme on August 21st". In that piece I said it was a clear signal to sell, as the put to call ratio went as low as 0.59. I received some flack on that call and I responded by saying that the data showed it was statistically significant to at least 2 sigma, meaning it was at least 95% confidence level the data point was unusual since 1/2/08 to that day. Looking back now, the Dow closed at 9595. Yesterday's close has the Dow at 9280. That's a 3.3% decline so far.I expect more to come. So while there are many disbelievers of using such data as an indicator for Buy and Sell signals, so far this one has proven valid. My guess is that many will not want to go into the long weekend holding on to shares so we will see a negative day on Friday as the Unemployment numbers for August are reported. And no matter how the numbers come out, the market will sell off.

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