The Dow Jones Industrial Average closed above 13,000 on Tuesday, it highest level since May 19, 2008. However, the most recent rally in the Dow occurred with much lower volume than the move to its all-time high in 2007 and subsequent sell-off during the heart of the credit crisis in 2008. Analysts generally discount such moves when they occur with relatively weak volume.
“A move with minimal volume doesn’t have the same validity of money chasing prices higher,” says David Wienke, technical analyst and founder of Triquetra Resources Ltd. Wienke adds that money flow — a measure of whether traders are paying up to buy a stock — has been negative over the recent rally and for the last two years.
According to Investopedia, “If more shares were bought throughout the day on the uptick than the downtick, net money flow is positive because more investors were willing to pay a premium for the stock. If money flow is negative when a stock's price is rising, this could spell trouble.”
In the March issue of Futures Wienke points out that a double top from the spring of 2008 at 13,132 and 13,136 (see chart) should serve as strong resistance. The Dow fell sharply after failing at that level in May of 2008.
About the Author
Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange. Dan joined Futures magazine in 2001, before the name change to Modern Trader, and in 2005 he was promoted to Managing Editor, responsible for overseeing all the content that went into Futures and futuresmag.com. Dan’s incisive reporting and no-holds barred commentary places him among the most recognized national media figures covering futures, derivative trading and alternative investments.