Wednesday's
heavier volume selling was a clear warning sign to take some profits off the table and raise cash, although our proven stock market timing model remains in «confirmed buy» mode.
On May 1,
heavy volume selling in the S&P 500 forced us to cut long exposure in our model portfolio from approximately 38 % to 17 % by the open on May 2.
In our last blog post, Benefits of a rules - based trading system, we said the following: «On May 1 (Tuesday), the combination of
heavy volume selling in the Nasdaq, bearish «stalling action» in the S&P 500, and a «distribution day» (higher volume selling) the prior day forced us to cut long exposure in our model swing trading portfolio from approximately 38 % down to 17 % by the following day's open (May 2).
With yesterday's (July 10)
heavy volume selling, the Nasdaq Composite has already printed two «distribution days» since its recent buy signal, thereby forcing our disciplined, rule - based market timing model back in to «sell» mode.
Not exact matches
We saw a downright nasty reversal that day, with higher
volume levels and some very
heavy selling.
Other leading stocks that
sold off on
heavy volume yesterday included: Qihoo 360 Technology ($ QIHU), Vipshop Holdings ($ VIPS), Soufun Holdings ($ SFUN), Pandora Media ($ P), Mercadolibre ($ MELI), Priceline.com ($ PCLN), and Amazon.com ($ AMZN).
In this February 22 post on our trading blog, which was published immediately following two days of
heavy selling on February 20 and 21, we said, «If and when the S&P attempts to bounce from its current level, the subsequent price and
volume action that immediately follows any recovery attempt will be extremely important at -LSB-...]
Although $ SPY closed in positive territory, the retreat off its intraday high that occurred on
heavier volume is known as «churning,» which is stealth
selling into strength by banks, mutual funds, hedge funds, and other institutions:
Whenever there are 5 or more «distribution days» (losses on higher
volume) in a major index within a 3 to 4 week period, and leading stocks begin
selling off on
heavy volume, it is always a major concern.
Among widely followed indicators, we can see some of this in the declining number of individual stocks achieving new 52 - week highs when the major market indices push higher, by the tendency for trading
volume to become dull on advances and expand on declines (or what is a similar observation, the tendency for the market to make little progress on
heavy up -
volume and substantial downside progress on light down -
volume), and in the recent explosion of insider
selling.
But history shows that
volume at bottoms is always
heavier than on the recovery, as the panic
selling it depicts can reflect capitulation, or nervous investors giving up.
This relatively light
volume suggests that, while
selling was intense, it was likely not
heavy enough to qualify as panic
selling.»
Even though the benchmark S&P 500 Index has been outperforming the other averages lately, Wednesday's (August 1)
heavy selling was the second day in a row of institutional distribution (higher
volume losses).
As a result, the four
heaviest home -
selling months — May, June, July and August — account for 40 % of an average year's total home -
selling volume.