When analyzing trading volume, one should understand that it works differently in ETFs than it does in individual stocks. Volume studies can be important in individual stocks to help confirm the validity of an apparent breakout, for example. Volume is also important to help validate a head-and-shoulders structure.
But in the big ETFs, like QQQ or SPY, volume works in a different way. Very simply, those ETFs' volume tends to move inversely with prices. Falling prices serve to get traders more excited, and they turn to the big ETFs for their greater trading liquidity. Some traders also employ those ETFs as shorting vehicles to hedge overall portfolio risk. When traders are feeling more confident and complacent, that's when trading volume tends to go down.
This can become a useful indication as high-volume days in QQQ can be good markers of a price bottom, and as very low volume is a sign of complacency and thus of a price top. One must be careful in that latter case, because low trading volume can also come about on days near major holidays, like the Friday after Thanksgiving or the whole period around Christmas. So one should employ at least a mental filter when evaluating low volume readings which may be holiday related.
This week's chart shows a 10-day simple moving average of daily trading volume in QQQ. This indicator has dropped to its lowest reading in almost 2 years as prices have been pushing up to higher levels. Its message is that traders are feeling confident about seeing continued higher price highs. By this measure, they are even more confident than they were at the price top in early May 2019.
Tom McClellan, Editor