Volume Knows No Holiday

Yesterday was the solemn Jewish holiday of Yom Kippur. It was a day of atonement and fasting. It was certainly not a day when most Jews work. And given the large number of Jewish traders it was understandable to many that volume was quite light.

Not to us.

We believe that volume finds its way into the market when it needs to. We’ve seen “quiet” summer Fridays and pre-holiday sessions explode with volume when it was warranted. While there was no earth shattering catalyst for volume Monday, we expected far greater participation on an explosive up day after a three day pullback. Its absence is especially suspicious given the bearish nature of the decline, featuring distribution and low of day closes.

We believe you should still be playing the market on the long side. Leading stocks are holding up and a number of stocks are still making fresh highs. Indeed we have continued posting trading ideas on our sister blog.

But we also believe you should look at the market with a jaundiced eye given the negative signals we have seen, which we have detailed. Another up day on lackluster volume would be cause for yet still more concern.

Meantime the leader of the worldwide rally, the Shanghai Composite, is also in a precarious position and the direction of that bourse could well influence trading around the globe, just as it has all year. That market remains in a confirmed uptrend but it has two days of distribution and one day of churning, which are not generally positive signs so soon after a change in trend. Price has continued lower on progressively lighter volume, a potentially bullish divergence. But the absence of a forceful reversal is yet another yellow caution light.