A word of advice: Read this article if you are interested in understanding an important aspect of the market's internals -- cumulative volume on the New York Stock Exchange. If, on the other hand, you are fortunate enough to own stocks like Applied Micro Circuits (AMCC) , Cisco (CSCO) - Get Report, PMC Sierra (PMCS) or STMicroelectronics (STM) - Get Report -- go elsewhere. (I mean no insult to anyone who owns these beauties, but if you do, market commentary is superfluous.)
I know that
often reviews cumulative volume in her columns, but I thought it would be a good idea if I gave my take on just how important this indicator is to the action of the broader market.
Cumulative volume is the daily difference, accumulated over time, between advancing volume and declining volume on the NYSE. I get my statistics from the stock market data bank in the "Money and Investing" section of
The Wall Street Journal
. Just to give you an idea how much I value this indicator, I actually have data on advancing and declining volume on the NYSE going back to 1965 and have been compiling the data by hand since 1990. I look at it on a daily basis, but use a six-month time frame when looking for overall trends.
Daily cumulative volume is a concern right now because it has moved below the recent low established on Jan. 28, and looks like it will retest the lows of October 1998. By extension, overall weakness should continue in the
Dow Jones Industrial Average
Standard & Poor's 500
It's a lot easier for me to understand cumulative volume if I imagine it as a long-ball indicator (yep, baseball again), while cumulative breadth -- which everyone agrees is bearish -- is a small-ball indicator. Long-ball equals home runs. Small-ball equals station-to-station baseball. So, if cumulative volume is a long-ball indicator, I picture it as
By the way, I picture the small-ball indicator cumulative breadth as
, known to fans as Whitey. I love him and believe fully that his election to the National Baseball Hall of Fame is correct. (He had a .308 lifetime batting average, was a two-time batting champion, led the league in outfield chances nine times, was the fifth in career outfield putouts, with four seasons of 500 or more putouts and nine seasons with 400 or more putouts; plain and simple, this guy could go get it.) But Richie did not "go yard," and cumulative breadth is not a long-ball indicator.
As for Jackson, the self-christened "straw-that-stirs-the-drink" hit a lot of home runs (563, sixth on the all-time list), but he also holds the record for career strikeouts at 2,597. And, if you remember, when Reggie went down swinging it was in a fantastic and often violent corkscrew fashion which left him facing a fan sitting behind the first-base dugout. Some claim it was almost as exciting to see Reggie strike out as it was to see him "go yard."
So, because cumulative volume has broken beneath the late January low, the ability of long investors to hit home runs is sorely limited and will stay that way until cumulative volume improves. Or, difficult times will continue for the Dow and S&P 500 until "Reggie" can break out of his slump. That's why I think there is downside risk for the Dow to its October low of 9976.02 and the S&P 500 to 1350.
John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at