Birinyi’s Ruler Predicts The End Of The Stock Market: Trading Volume To Hit Zero By Year End
Although the volume of stock market trading is decreasing rapidly, the chart above shows the regression line extrapolated to no trades. Ask yourself why the market is increasing if people are not buying stock. Or the better question is how is the stock market increasing if people are not buying stock. Have you ever heard of POMO by the New York Federal Reserve?
A quick primer on stock market volume significance (highlight added for emphasis):
Volume should follow the trend
In a bullish phase volume should expand on rallies and contract on declines. In a bearish phase volume should expand on declines and contract on rallies.
In an uptrend an increasing number of buyers are required to thwart pent-up and natural selling pressures. The higher a stock moves in price the more likely it is that those that bought the stock at lower prices will want to sell. For the rally to continue these shares need to be absorbed by new buyers. If price advances quickly buyers may step back creating temporary weakness but these periods should be characterized by weak volume if the trend is strong.
In a bearish trend, when the outlook is poor, volume should expand on declines because buyers are overwhelmed by sellers. If the stock sinks quickly some sellers will refuse to sell, choosing to wait for a small rally in price. This temporary absence of sellers creates a small vacuum that should lead to a light volume rally. When the stock rallies sufficiently sellers that failed to exit ahead of the first major decline begin selling and once again volume should expand.
Who let the bears out?
David DeGerolamo
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Thank the Federal Reserve for POMO
