In case you hadn’t noticed, the S&P 500 has had a MONSTER rally since February 11, rising over 14%. Just since the beginning of March, the index has risen over 137 handles!
Knowing this, look at the headlines below:
- March 2nd – Zero Hedge: Small Cap Stock Soar on the Lowest Volume Day of the Year
- March 17th – The Wall Street Journal: If No One’s Trading Stocks, Is it Really a Rally?
Has any of the hand-wringing about the, at times, anemic volume of this rally been helpful? ABSOLUTELY NOT!
I understand the disbelief. When I calculated the potential measured move of the bullish “W” formation in the S&P 500 on March 5th, I was skeptical that it would actually be reached. Yet here we are.
Sure this rally is getting long in the tooth. Sure the 200 day moving average is still declining. But we make money when price remains above the 8 and 21 day (exponential) moving averages. Before this rally comes to an end, we are going to AT LEAST need to see a close below the yellow line in the chart above. Getting bearish before that happens makes no sense. These simple principles apply to anything you are trading.
Volume is noise. Tune it out and focus on what makes you money which is price. Like Brian Shannon, one of my virtual mentors, is known for saying: Only Price Pays. Profits made on low volume are just as valid as profits made on high volume.
So turn down the volume and listen closely to what the price action is telling you.