Stock Market Buying Volume Continues to Drop on the US Indexes

By: Donald_W_Dony

There has been a sharp divergence between the buying volume and the US indexes. The Dow, S&P 500 and the broad New York Stock Exchange (NYSE) Composite have all shown a marked separation between the rising prices of the indexes and buying volume.

For example, during this last advance in September, On Balance Volume (OBV), a measure of buying and selling pressure, has indicated that there was a clear decrease in buying pressure during this rise. The NYSE rose to a new high whereas the OBV dropped lower.

On Balance Volume is a simple indicator that uses volume and price to measure buying and selling pressure. OBV should follow the same trend as the underlying security. When there is a bearish divergence it suggest a trend reversal can be anticipated. A divergence of the OBV, however, can last several months before there is a trend change in the security.

Bottom line: The rise in September on the US indexes should be viewed with some caution. Though volume does not match the recent increase in the NYSE and S&P 500, it also does not indicate that a trend reverse is eminent. Nevertheless, the longer the bearish divergence occurs, the greater the probability of a trend reversal developing.

More research on the current market conditions will be in the upcoming October newsletter.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2012 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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