Street Sense: Watch the Volume

I talk endlessly about volume and the importance of it as a predictor of price movement. After all, we follow where the money is flowing, and since liquidity drives the markets, that is the best indicator out there.

Well, we have rallied recently on lower volume. Since March 6, we have not seen a day on which the bulls claimed victory in the volume column. Oh sure, the rally was large, widespread and long. Certainly we cannot discount the size and scope and power, yet the same thing occurred in 1929, and a much larger decline ensued.

So, what would bigger volume mean? With the trend down, probably not a bullish thing. In fact, I would suspect more heading for the exits if that should occur, so watch the volume.

Some stocks that have exhibited rising volume during this recent move down include Google(GOOG Quote), Intel(INTC Quote), First Solar(FSLR Quote), Transocean(RIG Quote), Intuitive Surgical(ISRG Quote) and IntercontinentalExchange(ICE Quote).

How would higher volume correlate with a lower market? Moving averages are pointing down, the path of least resistance is lower and profit-takers are going to be busy. Why not? A huge 30% return on the markets in just four months is outstanding, and why not protect profits? Levels to watch for include 850 on the S&P 500, then perhaps on to 800, a round number and 50% Fibonacci retracement.