A Look At Light Volume

The market pulled back today on light volume. Often heralded as a good thing, readers of this blog understand over the short-term it isn’t.

So I spent some time looking at volume tonight. I’ve been noticing how it has just fallen off a cliff since Easter. I decided to compare the volume the last 30 days to the volume of the previous 50. The last 30 days have posted average daily volume less than 75% of the average of the previous 50. I thought this unusual and did a study to find other times this may have occurred.

Looking back to 1960 I found 10 other instances. Over the next 2-6 months prices rose 7 of ten times. There was also a general decrease in historical volatility 8 of the 10 times. Gains were generally in line with random and 7 for 10 isn’t mathematically significant, so I’m not sure there’s a lot to be learned here. I did find it interesting that all prior instances happened between 1960 and 1980. Dates are listed below:

6/26/61, 8/10/62, 7/26/63, 6/29/66, 2/25/74, 8/25/75, 4/19/76, 7/27/78, 12/13/78, 4/21/80.

If someone sees something I don’t I’d love to hear about it. I did find it interesting that many of the occurrences happened in a generally difficult period for the market but returns were pretty good. For instance, the 70’s had 5 instances – 4 of which led to higher prices over the next two months.