Declining trading volumes may not be bearish


Stock market volume in recent sessions has begun to decline, just as it does every June as summer begins. Analysts also have started to express concerns that this lower trading volume is an ominous sign.

However, summer months of June, July and August usually experience below-average trading volumes. Since these three months come right in the middle of the notorious “Sell In May and Go Away” seasonal inclination for below-average performance, one might be tempted to conclude that low volume is credibly bearish.

This is not necessary true! The typical September usually has above-average trading volume, and yet for many years it was the worst performer of the entire calendar. Furthermore, October on average has even higher trading volume than September, and yet its performance also often tends to be not stable.

Further complicating any analysis and forecasts are some changes in trading rules, market upgrades and institutional investors behavior.

So far, academic researchers worldwide have reached no consensus on any correlation between volume and price. Some studies have found slight evidence suggesting that price changes precede volume, while others have found just the opposite. And still others have found no relationship between the two.

Declining trading volume in the summer is probably not serious concern.


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