Many times over the years, herein and in video commentaries, we’ve touched on the signals inherent in overall volume (total shares trading hands) relative to price action.
Here’s Keith McCullough, CEO of Hedgeye Risk Management (an entirely data-driven consulting firm) this morning on the relationship between price, volume and volatility:
“Of all the times in U.S. history that the S&P has made all time highs, this is probably in the top 3 of the most unstable all time highs using the relationship between price and volume in particular, volatility all encompassing.
When we see the other side of this you’re going to believe a lot of that. Until that happens you believe you should take that last run down the ski hill, even though an avalanche is clearly building. When we look at this looking backwards we’re going to be able to see the crystal clearness of it all.”
Our assessment of the present risk/reward setup has me sympathizing with Keith’s sentiment. Of course that doesn’t mean an avalanche is imminent, just that the risks are building.