FRED GOODMAN'S KEY INDICATORS FOR INVESTMENT SUCCESS
Volume, Price and Days of the Week
Monday, July 28, 2003
Fred Goodman
To tell whether volume is really high or low, you need to know a little history.

I continue to be amazed by the superficial statements in the media about the relationship between price and volume. In Barron's Sunday, among many differing assessments about the significance of Friday's "low" volume rally, appeared the following: "Friday's rally came on fairly light volume..." Bloomberg reported: "July is usually one of the slowest months of the year on the New York Stock Exchange. This year, it's one of the busiest." Then there's the AP, which weighed in with: "Volume also was somewhat light, creating sharper price swings."

First of all, Friday's volume, as shown in our Volume Estimator, was within a few shares of the average for the last 5 days -- 1.388 billion. That's within 2% of the 5-day average volume recorded over the last 4-1/2 years! So it can hardly be called light. Not only that, but the table below, which compares both absolute daily price variability against changes in daily volume over the last 10 years, shows that volume on Fridays has been below average for the entire period. Therefore, since this Friday had average volume (instead of its following the historical norm of being below average), we could say the day actually had relatively high volume when compared to other Fridays.

Next, how about Bloomberg's contention that this July has been one of the busiest months of the year? Well actually it is right in the middle: the average volume for July is 4th out of the seven months so far this year.

Daily Changes in Price and Volume as a Percent of the 5-Day Averages

There are a number of interesting facts about price and volume revealed in the table. First of all, I have compared 1993-1997 with 1998-2003, and found that there has been a shift in the low volume days from Friday to Monday. It used to be that only Friday was lower than the average, but in the most recent 5 year period, it has shifted to Monday and Friday. Perhaps this has something to do with vacation habits on Wall Street -- I don't know, but the pattern is there.

Also revealed is the fact that Mondays for the last 12 months have been treacherous. The price of the Dow has averaged a 17.1% larger absolute price change (changes both up and down) on Mondays, than the average for the entire period. That's a variability almost four times greater than on any other day. While Monday has been much wilder in the last year, it has been the most active day over the last ten years as well. On the other hand, Wednesdays have made the smallest absolute price changes over the period. In the last year, Wednesday has experienced an average price change almost 11% lower than the average for all the days of the year. This supports the AP report that high volume days have smaller price swings than low volume days like Monday.

I think there is value to keep in mind the differences, especially in volume, that each day of the week brings. In summary, let's remember that price changes tend to be at their most violent on Mondays, when the volume is light, that volume tends to be lowest on both Monday and Friday, and that Wednesday tends to be a high volume, low price change day.

Fred Goodman, CFP, is a fee-only Certified Financial Planner based in Los Angeles. You can send him your questions and comments via email at Fred@MarketMonograph.com. The charts and commentary represent what Fred is thinking about the market and thinking of doing for his own account and for accounts he manages. There is no guarantee that you will profit from trading as discussed herein. You may lose money and Fred assumes no responsibility for what you do or do not do with this information.