When you are determining Price/Volume action on a stock, lets say the price is up, volume is down, but still above average. Is this considered negative or positive because volume is above average? And vise versa, Price down, volume up but below average? (July 22, 2000)
One very important thing to remember when looking at price/volume action is to look at the action for the past week. If the stock has been rising on stronger volume and falling on weaker volume, and volume overall is above average, that is great. That is what you want, especially on a breakout move. Now if the volume tapers off but is still high as the stock continues up, that is okay. Volume cannot keep rising every day; it would require geometrically larger volume, ultimately more than the entire market volume.
So, a lighter volume day on a rise is not all that bad if it follows several good days. Now if it starts to trend down, or if it drops below average, that is a real warning flag that a top or at least a plateau could be approaching. A stock cannot continue to climb on lower and lower volume. Interest is waning. If it is a leader, they will often pull back to the 10 day moving average (exponential setting) or plateau and form a 'flying plateau.' Then you want to see volume drop off when it pulls back or flattens out.
What you don't want to see after a run is a really high volume day where the stock finished way off of its high or goes nowhere on the day. If the volume is the highest of the run, it could be a blow off top, and as we saw with QCOM, the results can be disastrous. If it runs in place on high volume, that is churning, and that usually precedes a fall as well. Those may be more precipitous falls other than just to the 10 day moving average or some other close support.
Now if the price falls, we don't like to see higher volume. If it is below average, that is not as bad, but that often is a sign that something else is brewing and you need to be on alert. In short, whenever a stock sells on higher volume than the previous session, we are watching closely. If it is in a downtrend, i.e., pulling back after a nice run on lower volume and there is some higher volume on a day, but still below average, as long as it did not jump sharply higher, we won't panic. Again, however, we will be watching to see if something more ominous develops.
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