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Volume Is Talking Right Now

Traders should note that high volume in the major stock indexes usually indicates downside action for markets. Sometimes high volume will occur on the upside, but this usually happens on a break-out or a major news event. The rule of thumb is that heavy volume indicates downside action. Traders can easily look back at the SPDR S&P 500 (SPY) in mid-March and see how heavy the volume was. That heavy volume indicated that the SPY was trading lower and it did.

Since the recent bottom in the SPY on March 23rd, 2020 the volume has been much lighter. Again, the rule of thumb here is that light volume favors market upside. In fact, this week the SPY has been pulling back a little on much lighter volume than what we saw in mid-March. This tells me that the markets could simply be consolidating the recent rally. Should volume increase significantly on a market decline then it could be telling us something more is happening. Light volume pullbacks historically are telling us that markets want to resume the recent move. In this case, that is a move back to the upside.

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