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The Importance of Daily Volume in a Stock IndexVolume is very important to justify moves in the stock market, especially long-term trends. After the big drop a couple weeks ago there has been weak volume on attempted rallies. Today after the Fed’s decision to keep the interest rate flat, we saw a large rally in the stock market with a decent increase in volume. Volume is important to support a rally because it shows there is demand for stocks. The stock market works on supply and demand and without heavy demand it’s hard to sustain a rally. Below is a chart of an ETF that follows the S&P 500. This chart shows one month with volume levels underneath the chart. You can see that with the two down days there was very high volume. For an upturn in the market we need to see some strong up days with supporting volume. In the chart you can see the trends up in the market after the drop days have declining weak volume. The rally today had the increased volume we have been looking for. However, one day does not make a trend. We will see if the market can continue up with supporting volume.
Tags:
Average Daily Trading Volume
Learn How to Invest
Stock Market Rally
Stock Market Trend Analysis
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Results are from the close of 4/20/09 through 9/18/09 with two weeks pulled out starting on 6/6/09 while I was on vacation.
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