Dominant Price Volume Relationships

We haven't covered these in a while and it's a useful tool to help with your analysis. Volume tends to be one of the most under utilized indicators out there, it has lost some of its usefulness in a heavily manipulated market, but there are still areas where it is very useful, one is Dominant Price/Volume Relationships.

There are 4 Price/Volume relationships

Price Up and Volume Up, Price Up and Volume Down, Price Down and Volume Up and Price Down and Volume Down.

While each has a little different meaning depending on where it falls within a price trend, the basic concept is that Price Up and Volume Down is a bearish relationship if it is dominant, it shows buyers aren't aggressive.

Price Down/Volume Down tends to have the least meaning and it is the hallmark of a bear market.

Price Up / Volume Up is the most bullish relationship, this is often how a new move starts.

Today we have a dominant relationship, it's not everyday that we have a dominant relationship and only dominant relationships are useful.

Looking at several of the major averages, you'll see today's Dominant P/V relationship, I run a scan that tells me what the relationship is among the component stocks for each average.

Dow-30 - As you can see, the dominant relationship is Price Down and Volume Up. A Dominant Relationship is usually 2 times more than the second largest relationship. A relationship that is 50% of the component stocks in the average, that is also a dominant relationship, we don't always have dominant relationships and we see the same dominant relationship in all of the averages even less. With 22 of 30 Dow stocks closing down on heavier volume, we have a very dominant relationship. This has nothing to do with the Dow's volume itself, but rather the component stocks.

NASDAQ 100

All NYSE Stocks in the System

Russell 2000

Russell 3000

S&P-500

You may have noticed in all of the averages, the dominant theme is Price Down/Volume Up.

When an average first breaks support or an important level, this relationship is common as a lot of stops and orders are filled. However when the market has moved down several days/week this relationship is often seen as a mini-capitulation event and often leads to a reversal as the sellers have hit a short term moment of capitulation.

In today's case, this is a bullish indication for the market tomorrow. This of course is only one of many indications we can look at, but it is often a very useful tool.