Quotes

Volume Moving Averages (VMA): Every trader is familiar with moving averages of security prices, perhaps the most frequently used technical indicator. We simply apply the concept to volume, rather than to price, and plot Volume Moving Averages (VMA) ranging in duration from a few minutes to as long as several months.

VMA surges: In our market studies, we are particularly interested in the appearance of large peaks ("surges") in the VMA - known as VMA surges - and how an index reacts when they are generated. VMA surges are indicative of sudden bursts of significant buying or selling activity.

Bullish VMA Surge: The event of a Volume Surge as the index is moving higher.

Bearish VMA surge: The event of a Volume Surge as the index is moving down.

In the absence of distinct volume surges, we still call any volume that is generated as the index moves higher Buying Volume, and as it moves lower, Selling Volume.

Our research shows that index values will always react to VMA Surges (sometimes immediately and sometimes with a delay), and the greater the magnitude of a surge (or series of surges), the more pronounced the ensuing reaction.

Chart 1: VMA Surge Example

On the chart above, note the large selling volume surge that was generated during the S&P 500's move down and which pushed the index into oversold stage. Following the conclusion of the volume surge, note how the index reacted with an advance of more than 10 points.

On the chart below, note the volume accumulation and volume surge during the S&P 500 move down. Following the conclusion of the volume accumulation accompanied by volume surge, note how the index reacted with an advance of more than 40 (3%) points.

Chart 2: Price Reversal and Volume through SBV and MVO

Bullish Volume Accumulation: volume accumulated during the price move up. It shows how many shares were bought during up-trend. The bigger accumulation of the Bullish volume (green SBV area) the stronger index/stock is overbought.

Bearish Volume Accumulation:  volume accumulated during the price move down. It shows how many shares were sold during down-trend. The bigger accumulation of the Bearish volume (red SBV area) the stronger index/stock is oversold.

Bullish Volume Surge: The event of a Volume surge as the index is moving higher, which indicates that a large number of high-priced shares are being transferred (i.e., distributed) from one group of market participants to another. Following the surge, which uses up a lot of buying power, the number of those buyers willing to keep buying at these high (-inflated) prices becomes exhausted. Buyers are no longer willing to pay up (i.e., bid up / buy at the ask) - the market has reached a critical point where it is vulnerable to a trend reversal down.

Bearish Volume Surge: The event of a Volume surge as the index is moving down, which indicates that a large number of low-priced shares are being transferred (i.e., distributed) from one group of market participants to another. Following the surge, which uses up a lot of selling power, the number of those sellers that are still willing to "keep giving away" shares at low ("bargain") prices becomes exhausted. Sellers are no longer willing to dump their shares at the bid - the market has reached a critical point where it is vulnerable to a trend reversal up. (plus here buyers move in who are bottom fishing and shorts start to cover).

SBV Oscillator: proprietary oscillator developed by MarketVolume® to measure accumulation of Bullish and Bearish volume (green and red SBV areas) and to show the current sentiment whether traders are buying (SBV moves up) or selling (SBV moves down).

MVO Oscillator: proprietary oscillator developed by MarketVolume® to measure magnitude of Bullish and Bearish volume surges.

NEXT: Volume Moving Average