McClellan Chart In Focus: QQQ Volume Gave Us a Tell by Tom McClellan.


McClellan Chart In Focus
QQQ Volume Gave Us a Tell

Chart In FocusDecember 01, 2017

The high volume seen in QQQ on a recent selloff was a signal that short term bearish sentiment had gotten overdone.

The tech selloff on Nov. 29, 2017 was a peculiar one, as it was not echoed elsewhere in the market.  Instead, we saw the FANG and semiconductor stocks down hard, but the DJIA was actually up on the day.  And then the next day, all of the indices were up strongly, as if whatever was worrying tech investors on Nov. 29 was magically all over.  The high volume in QQQ was a sign of a concentrated moment of panic, which evidently washed itself out all at once.

Anyone who has read Edwards and Magee’s Technical Analysis of Stock Trends knows that volume confirmation of price action can be an important analysis tool.  But volume works differently in the big ETFs like QQQ or SPY.

High volume days in those ETFs signal excessive worry among traders.  This comes from two sources.  One is traders turning to the big ETFs instead of individual equities in times of peril because they believe that the ETFs are more liquid.  And another source of trading volume on those big days is from traders using the big ETFs as shorting vehicles, to hedge market exposure in their other holdings.  So when we see these high volume days, they are markers of acute bearish sentiment and they usually mark meaningful price bottoms.

Low volume days can sometimes mean the opposite, showing excessive complacency that can be a marker of a price top.  But caution must be employed with interpreting low volume days, because volume can sometimes be suppressed for other reasons, such as major holidays.

The same principle also works with volume in SPY:

SPY Volume

SPY’s volume can sometimes be elevated around quarterly option and futures expiration days, as the shares of that ETF get traded as part of the exercising of those options, so some caution is merited in interpreting high volume days then.  That effect does not seem to be much of a factor for QQQ though.

Tom McClellan
Editor, The McClellan Market Report

Related Charts

Feb 09, 2017
Enable Images to see this Chart
Low QQQ Volume a Sign of a Top
Dec 22, 2016
Enable Images to see this Chart
SPY Assets Zooming Higher
Jul 02, 2015
Enable Images to see this Chart
QQQ Volume Spikes on Selloff


, , , ,

Related Posts

About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.