Volume and Advance Decline

I guess now, at the end of the week there should be no questions that the high volume surge may lead to the shift in supply demand balance and reversal. In current case, strong volume surge during the price up-move pushed the market into situation when those bullish traders who wanted to buy bought and the number of bullish traders who still wants to buy became too small to continue feeding price up-move. As I mentioned in my "Big Volume" post on April 14, 2010: "institutional investors decided to dump ... to bullish traders...". The number of dumped shares on April 13-15, 2010 was quite big and basically it changed the balance of bullish and bearish traders.

Of course, the one may say the market dropped down because of the "Goldman Sachs". I do not consider that this is the reason for the drop we had (unless institutional traders, who dumped on April 13-15, knew about this far ahead and they manipulated the market). Of course, it may amplified the decline, yet, it would not happened if the market would not be overbought. The market declines after high volume surge during price up-move. It has to decline to restore supply/demand balance. In the same way, the Google shares declined despite the record profit.

The media will always explains any market movement as a result of some news. Media sells news and if nobody relays on news then media will not be needed. That is why they do it. Personally, I do not build any trading decision on news releases. Following news release, on my opinion, is equivalent to obeying the commands of those who try to manipulate the stock market.

Coming back to strong decline we had on Friday April 16, 2010, I would say that it was not an ordinary decline. The decline was quite strong and volume during this decline was even stronger than the volume generated on April 13-15 during the price up-move.

As a rule, the stock market (when I mention stock market I assume main indexes: S&P 500, DJI and Nasdaq 100) does not crash suddenly, especially after prolonged in time advance. It is custom to see side-way trading and increase in volatility first. That is why I would assume that we may see the indexes moving back to their recent highs. The volume surge during the Friday's decline itself may push indexes higher. The third factor pointing to possibility of rebound up is critically low advance/decline volume and ratio reading on Friday 16, 2010.

Overall, we still may see some push down, however, I do not expect Friday's decline to grown into strong correction, at least not at this time.