The On Balance Volume Dope ~ The Risk Averse Alert

Monday, November 05, 2012

The On Balance Volume Dope

Dope! I should have been paying more attention to Joe Granville's "On Balance Volume" indicator, particularly over the past year. Believe it or not, back in the day before the internet I used to manually calculate this measure and plot it on graph paper. You see it in the bottom panel below...


Negative divergences are noted via red line; positive, green. Whether I would have been less guarded last October given a positive OBV divergence registering while the measure remained in an uptrend off its 2010 bottom is questionable. However, once OBV broke above its May 1, 2011 peak in early December 2011 and its April 2010 peak later in the month, effectively strengthening the positive, forward implication of improving relative strength and momentum subsequent to the market's August 2011 gassing, well, that might have been reason enough to at least suppose the market was not about to come unglued.

Now, in his "New Key to Stock Market Profits" Granville theorized that volume precedes price. So, OBV's rise early this year to a new high provides technical substantiation to an outlook anticipating formation of an Elliott "rising wedge" off early-October 2011 bottom slated to peak somewhere north of the NYSE's May 1, 2011 peak. As for OBV's negative divergence at the NYSE's September 2012 peak, we might be witnessing the beginnings of the process of "volume preceding price," this as relates to what selling should follow formation of a rising wedge off early-October 2011 bottom. We will want to keep an eye on this over coming weeks.


The NASDAQ Composite's OBV certainly paints a different picture than does the death spiral of its cumulative advance-decline line, along with its 52-week high-low differential's display of persistently fading leadership. Here, the exclamation point on "Dope!" truly is earned. Well and good is the fact that, NASDAQ's advance off its March '09 bottom quite evidently is built on a foundation of sand. Yet that weak hands with no other choice have continued to put lipstick on their NASDAQ pigs, really, appears the ball we rather should be watching with regard to assessing NASDAQ's general market leadership. This, NASDAQ's OBV evidently provides an objective reading on.

Eventually, those holding on for dear life to their "pump and dump" garbage will have no choice but slaughter their lipstick smeared, forsaken darlings (been awhile since I called NASDAQ—"the stock exchange for the next 100 years"—by its more descriptive, time-tested name). In fact, the negative OBV divergence registering at the NASDAQ Composite's September 2012 peak suggests the knives already are out. NASDAQ's 200-day moving average all the more appears likely to fail support as a result.

Word on the Street
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