We’re picking up on a relatively bearish volume pattern in the Dow Jones and S&P Indexes.  On downswings in the context of the larger downtrend, we are seeing increased volume to the downside and light volume when price mounts counter-rallies (up-swings).  Let’s look at these patterns and see what they might mean.

A little background before viewing the charts.

Classic technical analysis uses volume to confirm price strength, or hint at developing weakness.  The easiest way to interpret volume is the following:

Rising Prices, Rising Volume (trend) = Bullish (confirmation)
Rising Prices, Falling Volume = Bearish (non-confirmation)

Falling Prices, Rising Volume = Bearish (confirmation)
Falling Prices, Falling Volume = Bullish (non-confirmation)

With that in mind, let’s look at the Dow’s Daily and Weekly charts (with a bit of bonus material beyond the volume).

Dow Jones Daily:

One can clearly see the non-confirmation of higher prices on the daily Dow, meaning that as prices have mounted a counter-swing rally up, volume has declined (in a trend-style fashion) almost every single day.  In fact, the highest volume reading of the last two months was made at the lower end of the price range, and the lowest volume is being recorded now.  This is extremely similar to what occurred during the prior counter-rally into May, which also terminated on low relative volume (as we’ll see).

Buyers and funds are not confirming these higher index prices with increased participation, meaning that it feasibly would be easy to imagine a downturn in the market due to lack of interest at these higher prices, such that price would have to auction lower to find value.

As a bonus, note that price is at resistance via the 50 day EMA and the trendline drawn from the July 15th bottom.  Price is currently failing a test of these levels.

On to the weekly chart.

Dow Jones Weekly:

We are able to see the volume illustrations clearer on this time frame.  Notice that on virtually every down-draft in the market recently, volume picked up, as lower prices were attracting more participation (selling led to more selling), and whenever the market mounted a counter-swing up (keep in mind the swing and impulse labeling, as the market is now in a confirmed downtrend), volume was flat or trailed off to lower levels, as higher prices were not confirmed.  Further selling occurred after these counter-rallies, which was preceded by non-confirmations in volume.

Price is also experiencing a failure test of the 20 month EMA and 200 week (roughly 4 year) SMA.

This volume observation is not going unnoticed by the larger traders and funds, I assume.  Continue to watch the current market closely for signs of strength or weakness, as well as further non-confirmations.