We often look at volume as the key to understanding where the big money is flowing. Do we want to see strong volume coming in when we’re at all-time highs? The answer is a resounding NO. Why? Well, markets and stocks move based on liquidity and sentiment. If the “crowd” is piling into a stock or index that is at/near its high, then who is left to buy? Nobody (a lot of people will be ready to sell, though). A high volume event at market highs can spell trouble.
Take a look below at the IWM, aka, Russell 2K index. The highlighted area shows the index soaring to new highs on expanded volume on March 4. The index peaked that day and has not been that high since. The indicators are also flashing negative signs and look to continue the downtrend. Could this be the story of the markets in a nutshell?
