Monday, June 28, 2010

Cumulative Volume

Today's column once again focuses on on-balance volume, also known as cumulative volume. This is basically a volume accumulator that adds the day's volume if the market closed up and subtracts it if the market closed down.

Joe Granville is credited with the study but it has been tweaked many ways in the decades since its been out. Weighted cumulative volume multiplies volume by price change and then adds/subtracts from the total. The version of money flow I used to use in the 80s takes that down to the tick level.

I loved money flow but I am sure it suffers from the same problems as all tick based indicators. Moot point since the Tradecenter database disappeared years ago.

Anyway, the point I made, this time for banks, was that volume is greater as these stocks are sold and that is bearish. Think of it as supply and demand where supply is kicking booty. (Do you think Blackbeard was thinking derriere that when he hunted for booty?)

The story was one more reason why volume matters again. This time, I applied it to the banks but overall I can see that it is indeed back in the game.


Amalan said...

Speaking of volume, I read in Barron's that Laszlo Birinyi (studying money flow) wants us to invest likes it's 1982! Meanwhile, the 10-year treasury hit new highs pushing yields lower than what it was more than a year ago. More to fall or bottoming out?

William said...

Looks like a cross in 50/200 is inevitable at this point... Death Cross right as we break the neck line?

Quick Takes Pro said...

I loved Laszlo's version of moneyflow. But I am sure it does not say it is time to go all-in long. I do not get his call but then again, he was right last year.

Quick Takes Pro said...

William, fire up the dirge-eridoo.

Ooh, that has to be the worst and the least-funny pun I ever made.