Mark Hulbert takes a look at the allegedly bearish low volume in August. Here's the heart of his article:
Notice that -- surprise! -- August on average experiences the lowest trading volume, followed closely by July and June. The months that on average experience the greatest trading volume are January and November.Therefore, when advisers gravely announce that last month's low trading volume is a bearish omen -- as many of them have done in recent days -- they in effect are saying that August is in itself a bearish omen.
But that's just plain silly.
Just as plausibly, in fact, these advisers could argue that August's low trading volume is laying the foundation for above-average market gains. That's because August comes just two months prior to the beginning of the November-through-May period in which the market typically produces its highest returns.
This isn't to say that volume is unimportant. But, at a minimum, the volume data must be seasonally adjusted before they even potentially can take on any significance. And even then, the volume data undoubtedly need to be massaged in still other ways, since low volume during a rally undoubtedly means something different than low volume during a decline.
Excellent commentary on the "low volume" question. I wonder how useful it might be to seasonally adjust volume for individual stocks???