Cumulative volume may be enough

I exchanged some comments in a recent Linkedin post about the current market.

It was based around ‘markets’ not seeing a surge in selling volume to imply that we are closer to a ‘wash-out’ and trough in capital markets.

And while we haven’t seen a ‘crescendo’ of concentrated volume, it prompted me to ponder that there isn’t a rule or requisite that suggests it must do so.

There are some stocks (and indices such as the ASX 200) seeing a ‘double dip’ visit into Oversold territory over a 6 -7 week timeframe.

So I think that perhaps we have seen enough cumulative volume over that time (from the initial Oversold to the current Oversold) to add to up to a ‘washout’.

When you combine above average volume over a longer period of time, where sellers are the more aggressive in ‘hitting the bid’, coupled with buyers simply ‘pulling their bids’ lower, you’ll see the result of prices easing, easily.

And in the absence of ‘strength’ in the trend, a floor seems nigh.

For example, ANZ Bank fell into oversold territory on a ‘daily’ basis on May 10th, 2022 and again, now, on June 17, 2022.

Since the decline commenced on May 5th (for over 31 days) ANZ Bank has seen 208 million shares traded.

ANZ Bank’s average monthly volume (over the past 12 months) has been ~ 113 million shares.

We have nearly seen twice the amount of volume turned over in the past month.

The 208 million traded over the past 31 days equates to 7.5% of ANZ Bank’s shares outstanding.

Albeit, I haven’t got an almanac to be guided by but my experience tells me that this is a large amount of turnover devoid of material bad news or downgrades.

Its a sign that the holders of the stock are in the process of reverting from weak hands to stronger hands.

June 19, 2022

by Rob Zdravevski

rob@karriasset.com.au