“The bottom is preceded by a period in which the market declines on low volumes and rises on high volumes. The end of a bear market is characterised by a final slump of prices on low trading volumes. Confirmation that the bear trend is over will be rising volumes at the new higher levels after the first rebound in equity prices.” (Napier Russell, Anatomy of the Bear: Lessons from Wall Street’s four great bottoms)
Volume analysis is an important consideration in determining whether the index is at the beginning of a rally or the end of a bear.
Historical trading graph and volume of Malaysia’s FBMKLCI is shown below:
The volume of rises and declines of FBMKLCI is discussed as follows:
2009 – end 2013: increasing rise volumes coincides with a bull run in the FBMKLCI
2014 – 2015: lower rise volumes coincides with a downward reversal in FBMKLCI
2015-2016: increasing rise volumes potentially mean the end of the bear market? To confirm this, we need to see a much higher volume to be followed by upward price movement
It works quite opposite to the Rise Volume. Nevertheless, we are currently seeing a lower decline volumes, which may potentially mean the end of the bear market with FBMKLCI.
Trading volume is only one part of the entire equation. More importantly, the end of bear market should always be accompanied by positive catalysts / strong macroeconomic indicators.
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