Today, I will talk about volume, which is often overlooked as an important indicator of what is happening behind the curtains, masked by the ups and downs of price.
Many times I've heard the increase in volume described as a "more" buyers or sellers in the market. It is very important to keep in mind that the volume describes the number of shares which have changed hands. This means that there were just as many buyers as there were sellers in that day who were willing to change positions at those price levels.
One thing to keep in mind is that an increase - usually compared to an average daily volume - can be an indication of an underlying change.
An increase in volume can result from different scenarios playing out. One could be that "big money" is coming in. This is institutional investors or funds that may be buying in big volume. Although they would try to space out their positions as to not move the market and absorb the sellers, their move will still increase volume. Another reason could be that big traders have flocked to a certain stock or security and they are trading the hell out of it, increasing daily volumes. Either way, there is much focus on this particular stock or commodity.
As an example, lets take a look at the weekly chart of HNU (Ultra shares for Natural Gas):
In this chart, I've separated the volume chart and dropped it to the bottom for more clarity.
At the right side of the chart, a ramp up in volume is clearly visible. Last week the volume sky rocketed to over the 60 million mark when the 3 month average daily volume has been around 4 million shares. This, combined with the stop in downtrend of price signals change.
Below is the daily chart of HNU, which you have seen posted on this blog many times, as I am following it closely.
The daily ramp up in volume is visible in more detail here. This increase in volume does not necessarily mean that the stock will take off from here. There are just as many sellers willing to sell at these prices as there are willing buyers - there is now more of them who are actively changing positions. This indicates a possible shift in market psychology. I've redrawn the support line as evidence has built up that support may not be up trending but more "base building". Let's watch for more developments....
Disclosure: I own HNU in my portfolio.
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