Thursday, April 9, 2009

Putting The Low Volume Rally In Context

Zero Hedge has previously discussed the aberration effects of daily gaps (up and down) as well as trading volume on the true state of market fair value indications. We present some VWAP (Volume-Weighted Average Price) data for our readers based on SPY index price and volume levels. We end up with some interesting conclusions.

The SPY is currently trading at a price of 84.77 (10x less than the S&P500 it tracks). Curiously, since the 3/06 lows in SPY, the VWAP is $78.21, or an implied correlation to roughly 782 in the S&P500. The VWAP number is around 2 standard deviations from its average, after hitting a a high of 12 standard deviations in the time chart. The VWAP is hardly rising at an aggressive level but is still positively trending – volumes are dwindling clearly, yet the market keep trading higher on lower and lower volumes.

In more recent data, the daily (rolling) VWAP is around $83.11 which is way lower relative to the recent VWAP data and shows the opening gap exaggeration relative to real price volume action. The chart below shows just how out of line with the VWAP and VWAP volatility the current day’s price action is.

On a dollar relative value basis, the VWAP for the SPY is $14.26 from March 6 lows:

Looking at the culprit of today's shennanigans, WFC had a $15.57 VWAP in the current week, and today's VWAP and the price have actually converged, as the actual price has dropped.

Lastly, for absolute value purists, we show that as a result of today's financial frenzy, the current bear market rally has just hit a 27.6% retracement, making it the biggest one since the down turn began: resistance or new support?

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Anonymous said...


Who wants to get short when we all know that the TARP fund boys have a mandate to prop up the market if it falls.

Good night!

Anonymous said...

It's Passover.. 50% of traders/PMs gone all week ;)

Anonymous said...

Low volume may be similar to what happened in Japan as the public started to view the stock markets as nothing more then the casino they are.

Anonymous said...

Isn't using SPY volume problematic as funds use it as a market neutral position and when they become less risk averse they invest in individual stocks? So lower SPY volume may be a sign of less risk aversion?

poolparty said...

is there anywhere on the internet to search VWAP numbers? or is this a self made chart.

Anonymous said...

Anyone think that the low vol moves are being done to get into programming ranges of specific trade programs? Even if its low volume, if the crooks push it over say 850, does that send a signal to program trades to buy more? just guessing.

poolparty said...

is there any VWAP data from the end of November, and the end of December... or do all these low volume periods just fall on NYSE Holidays.

Anonymous said...

I agree with the poster who said that SPY volume is kind of tricky to use for this type of study. has an indicator called "ETF Liquidity Premium" or something similar that shows historically ETFs are the product of choice when uncertainty is high.