Last week we featured some commentaries on trading volume during bear market bottoming processes (1929, 1973, and 2000) to get some perspective on the current price-volume relationship.
Today, let's examine the topic from a technical perspective, courtesy of some analysis provided by Serge Perreault, a Chartered Accountant located near Montreal, Canada. Serge points out that all our charts exhibit some form of Inverse Head And Shoulders(IH&S) formation. As the Investopedia link explains, "Many traders will watch for a large spike in volume to confirm the validity of the breakout."
Here's an annotated chart of the Dow Crash of 1929 and the following rally. The IH&S was a second-take affair. The first breakout above the neckline aborted. About six months later a second breakout succeeded. The heavier volume powered the second rally.
Like the Crash of 1929, the initial rally off the bottom of the Tech Crash aborted. A more successful rally came six months later. Volume was a factor, although less so than in the two earlier illustrations.
Which brings us to today's market. We've had a breakout above the neckline of an IH&S pattern but with low volume compared to the sharp increase in price. Will this rally abort? The relatively low volume so far doesn't bode well for a continuation. Nor does it mesh with the bullish bias of the popular financial media.