EXCHANGE VOLUME AINT WHAT IT USED TO BE -- LOW VOLUME UNDERMINES NEW HIGHS IN DOW -- RUSSIA LEADS THE BRICS WITH A NEW HIGH -- INDIAN SENSEX INDEX HITS SUPPORT ZONE -- SHANGHAI COMPOSITE STALLS NEAR WEDGE TRENDLINE
EXCHANGE VOLUME AINT WHAT IT USED TO BE... Link for todays video. Exchange and index volume levels are increasingly difficult to measure. In the good olds days, stocks traded on the exchanges and the exchanges reported volume. Reported volume levels were pretty close to reality and volume based indicators were more robust. I hate to imply that this time is different, but it is apparent that things have changed regarding volume. In addition to normal exchange volume from the NYSE and Nasdaq, trading can also occur in so-called dark pools, on the BATS exchange or through other non-exchange entities. There are even concerns within the exchanges, especially the NYSE. A handful of finance related stocks dominate NYSE volume activity. Citigroup averages 581 million shares per day, Bank of America 185 million, General Electric 70 million, JP Morgan 40 million and Wells Fargo 39 million. These five volume hogs are consistently near the top of the most active list on the NYSE. When was the last time Citigroup was not the volume leader? The NYSE averages some 4.7 billion shares per day, of which Citibank and Bank of America account for around 16% on average. While these stocks are important, I am not sure they are worth 16% of the total stock market! Keep this in mind when measuring and analyzing exchange volume.
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Chart 1
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Chart 2
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Chart 3
Chart 1 shows Citigroup (C) gapping down in mid January and then consolidating the last few weeks. Watch these boundaries for the next directional break. Chart 2 shows Bank of America (BAC) retracing around 62% of its late January decline. The stock stalled over the last two days, but remains above the trendline. Chart 3 shows the NY Composite ($NYA) within a rising channel. The surge above 8300 occurred with diminishing volume, but there are no signs of weakness in price action (trend). Key support resides around 8000.
LOW VOLUME UNDERMINES NEW HIGHS IN DOW... Chart 4 shows the Dow Industrials leading the market higher with a move from 11800 to 12200 this month, about 3.3% in just seven days. Today is the eighth trading day of the month. Despite this strong move higher, volume peaked on the second day of the surge. Moreover, volume levels have been significantly low the last five trading days, all of which were up. The blue line is the 250-day SMA of volume, which covers around one year. Volume the last five days is well below this average. The pink dotted line marks these volume levels for some perspective. Only the period from Christmas to New Year experienced such a string of low volume days. Low volume on a surge to new highs is a concern because it undermines strength. Volume is fuel and fuel appears to be drying up. This is another one of these watch indicators. Price-wise, the Dow shows no signs of weakness and remains in a definitive uptrend. The late August trendline and late January low mark support around 11800.
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Chart 4
The bottom indicator windows shows the Percentage Volume Oscillator (5,250) and the 8-day Rate-of-Change. The PVO is the 5-day EMA of volume less the 250-day EMA. This difference is divided by the 250-day EMA to show volume changes in percentage terms. In general, volume is above average when PVO is positive and below average when negative. PVO was positive until the end of January and then moved sharply lower this month. The indicator hit -19, which suggest that the 5-day EMA for volume is around 19% below average. This plunge in volume does not jibe with the surge in the 8-day Rate-of-Change, which surged to 3.5%. Dow volume does not include Citigroup, but it does include volume-piglet Bank of America.
RUSSIA LEADS THE BRICS WITH A NEW HIGH... Three of the four BRIC countries continue to show weakness, but Russia remains a top performer. The BRIC countries are Brazil, Russia, India and China. The Russian Trading System ($RTSI) is by far the strongest of the four. In fact, chart 5 shows the $RTSI trading near a 52-week high, which makes it one of the strongest indices in the world. As with the US equity indices, the Russian index is getting overbought after a 50+ percent advance since late May and a 20+ percent advance since late November. Also notice that the index is trading near the upper trendline of a rising channel. Despite overextended conditions, the index shows no signs of weakness, just like the US indices. Should a pullback one day emerge, broken resistance turns into the first support zone to watch around 1650.
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Chart 5
INDIAN SENSEX INDEX HITS SUPPORT ZONE... In contrast to Russia, stock markets in China, India and Brazil are trading at multi-month lows. John Murphy noted that central banks in China and India recently raised interest rates to combat inflation. The Chinese central bank raised rates again this week. Rising rates and inflationary pressures have taken their toll on the Shanghai Composite ($SSEC) and the India Sensex Index ($BSE). In general, we have seen money moving into developed markets, but out of many key emerging markets. For those keeping score at home, the Nikkei 225 ($NIKK) recorded a 9-month high this week and the Australian All Ords Index ($AORD) hit a 52-week high. Will the emerging markets pull the developed markets lower or are these declines simply deep corrections? Chart 6 shows the Sensex Index plunging this year with a move below its September low. The index is, however, oversold and near support from broken resistance and the 62% retracement zone. This is an area to watch in the coming days.
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Chart 6
SHANGHAI COMPOSITE STALLS NEAR WEDGE TRENDLINE... Chart 7 shows the Shanghai Composite surging to the wedge trendline just below the Lunar New Year Holiday. After a week off, the index closed at 2774 on Wednesday, which was down around 1%. I continue to watch this key emerging market index because it could be forming a higher low with the bounce off its support zone. Follow though above 2800 would break the wedge trendline and warrant a reassessment of the downtrend.
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Chart 7
Chart 8 shows the Brazilian Bovespa Index ($BVSP) forming a lower high in January and breaking support at 67000. Despite this support break and relative weakness, the index is getting oversold and closing in on potential support in the 64K-65K area. Support here stems from the 50-62% retracement and the August low.
