McClellan Chart In Focus: QQQ Volume Showing Us Sign of a Top – By Tom McClellan

Chart In Focus

When analyzing trading volume, one should understand that it works differently in ETFs than it does in individual stocks.  Volume studies can be important in individual stocks, to help confirm the validity of an apparent breakout for example.  Volume is also important to help validate a head and shoulders structure. 

But in the big ETFs like QQQ or SPY, volume works in a different way.  Very simply, those ETFs’ volume tends to move inversely with prices.  Falling prices serve to get traders more excited, and they turn to the big ETFs for their greater trading liquidity.  Some traders also employ those ETFs as shorting vehicles to hedge overall portfolio risk.  When traders are feeling more confident and complacent, then trading volume tends to go down. 

This can become a useful indication as high volume days in QQQ can be good markers of a price bottom, and as very low volume is a sign of complacency and thus of a price top.  One must be careful in that latter case, because low trading volume can also come about on days near major holidays, like the Friday after Thanksgiving, or the whole period around Christmas.  So one should employ at least a mental filter when evaluating low volume readings which may be holiday related.

This week’s chart shows a 10-day simple moving average of daily trading volume in QQQ.  This indicator has dropped to its lowest reading in almost 2 years, as prices have been pushing up to higher levels.  Its message is that traders are feeling confident about seeing continued higher price highs.  By this measure, they are even more confident than they were at the price top in early May 2019.

Tom McClellan
Editor, The McClellan Market Report

July 18, 2019


Related Charts

Feb 09, 2017
Low QQQ Volume a Sign of a Top
Jun 08, 2018
Too Much Love for QQQ
Dec 1, 2017
QQQ Volume Gave Us a Tell



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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.