Volume Speaks Volumes

         (This Report was put on HOLD as a source of NYSE average monthly
volume has not been readily available since 2012). However, in July 2023, after obtaining the required data, we promptly updated it! This update serves as an excellent out-of-sample real-life test reaffirming that this indicator has not lost its effectiveness and continues to signal impending tops.

Foretelling stock market tops is the hardest part of market timing. There are some excellent “pre-BUY” indicators that come in around market bottoms, as discussed in “The COMPOSITE Timing Indicator”, but very little in the way of an advance indicator for market tops. There is, however, one recurring phenomenon that you should be aware of, and that is the relationship between NYSE monthly volume peaks and Bull market tops. The largest monthly volume during a Bull market, after it is “official,” based on my definition found in “Bull Markets in the 20th-21st Centuries“, tends to occur five months ahead of the market’s top. Each month has its own number of trading days due to holidays, how weekends fall, etc, such as February always having less than any other. Therefore it is most appropriate to use the month with the highest average volume per day. In 2005 March had the highest total volume, but April had the highest average daily volume, so it should be used in this study. Fortunately, it seldom makes any significant difference, yet logic dictates that average volume per day is the most appropriate method.

Bear Mkt Low:"Official" Bull Mkt:High Volume Mo:Stk Mkt Top Mo:Lead time:
9/1900  12/00 est.4/016/012 mos.
11/03  7/04  "1/061/060
11/07  1/08  "11/0811/0912
9/11  3/12  "4/129/125
  12/14  4/15  "11/1611/160
12/17  1/18  "10/1911/191
8/21  11/21 "4/223/2311
10/23  7/24  "10/299/291 (lag)
7/32  7/32 Actual3/33*3/3748*
3/38  4/3810/3811/381
4/42  10/421/465/464
6/49  11/4912/544/5616
10/57  7/583/6112/619
6/62  11/62 12/652/662
10/66  4/674/6812/688
5/70 9/7011/721/732
12/74  1/751/769/768
2/78 8/788/789/781
4/80  7/803/813/810
8/82  9/828/878/870
10/87 2/886/887/9025
10/90  2/917/987/980
8/98 11/9812/991/001
9/01 11/011/023/022
11/028/0710/07 2
10/226/232/23 (to date)N/AN/A
Average:4.89 mos.

*This was the high volume month during the erratic markets associated with the depression and it’s aftermath when numerous ‘mini-bull and mini-bear markets’ occurred in the 1929-37 period and are considered to have been aberrations. It is not included in the average lead time calculation. Those aberrations are shown under “Bull & Bear” as a footnote to the ‘Historical Record’. Their average lead time of volume highs to market tops during those times was less than 1 month.

> The BOTTOM LINE:   Volume almost always (except once in 27 bull market tops) peaks at or before the stock market does. NYSE monthly volume was a record for the then-existing Bull market in December of 1999. Therefore one should have started looking for a stock market top over the following 5 months (on average). However, the Dow Jones topped that next month. In recent years there have been a number of times when the peak volume and the market’s peak were in the same month, i.e., no lag.    While this is an excellent ‘pre-sell’ indicator, it is not formally a part of the COMPOSITE Timing Indicator.  Even higher volume can, of course, follow the ‘record’ volume as a Bull market continues on. After the Bull market top, such as January 2000, any higher volume, such as occurred in March of 2000 and January and March of 2001, is of no help in determining the Bear market’s duration. It is during Bull markets that one watches for volume to top, as it did in January of 2002 before the March 2002 top and in August of 2007 before the October 2007 top.

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