On Balance Volume

Heather Cullen

Heather Cullen

In The Money

Heather Cullen Blog IN The Money ON Balance Volume

Is lack of volume significant?

I have been noticing – and was recently contacted by a reader who had noticed the same thing – that volumes since early May are well down, markedly below average. The reader queried: does this mean a market top is happening?

Is it a market top?

Well, I wish I knew. I don’t – but then nobody else does either (although afterwards many will claim that they predicted it!). So, lets first look at the situation:

Heather Cullen Blog IN The Money ON Balance Volume

It shows that the volume has decreased dramatically – what could have caused it? An explanation could be the court case involving Trump which started Mid-April which is when the volume decline started. The only significant volume day after that was May 31st – the day that the jury delivered its verdict? Correlation? Yes. Causation? Not proven.

What happened to volume in the past?

Let’s look at previous market tops and see what the volume was doing. Here’s the market top of January 2022. You can see that in the month leading up to it the volume looked pretty normal.

And if we look at the market top pre covid, again we see a normal volume chart.

Before Covid there hadn’t been a bear market for many years; we have to go back the GFC when the market peaked in 2007. Here’s the chart:

Heather Cullen Blog IN The Money ON Balance Volume

Again, in the month preceding the top the volume looks pretty normal.

On Balance Volume

An indicator I look at frequently (for information, not to base entry / exits on) is On Balance Volume (OBV).  This measures buying and selling pressures and is a cumulative total of volume flows. Volume increases on up days are added and volume decreases on down days are subtracted. If it is trending up, then that is a bullish sign; trending down means a bearish signal.

What’s happening now with OBV?

You can see that in the month before the April downturn the OBV was trending downwards. Since the start of May it has been trending upwards.

Let’s look at how this played out before previous bear markets.

On Balance Volume in past bear markets

Before the 2022 bear OBV was trending down:

Heather Cullen Blog IN The Money ON Balance Volume

Before the Covid bear it was neutral. Of course, the covid bear was unlike other bears, being caused by the government response to the pandemic, not economic conditions.

Heather Cullen Blog IN The Money ON Balance Volume

In the GFC bear OBV was trending down in the month before.

OK – so what does it mean?

To me, it signals that the lack of volume is caused by external factors unrelated to the stock market and doesn’t signal a downturn. (I really shouldn’t say things like that! Tempting fate.)

To check my reasoning, I asked AI, and here is the answer. An aside: I was asked if AI  writes this blog, and after I got over being offended, I said ‘no, I make it quite clear when AI is involved’. So here is the snapshot of its answer.

Heather Cullen Blog IN The Money ON Balance Volume
Heather Cullen Blog IN The Money ON Balance Volume

But what about ITM?

I know that when we are sitting on a nice profit it is hard not to take the money and run. That’s normal human behaviour – we have looked at that frequently.

If you got in at the signal in November and have been using a 50% strike then you are up 50%, a higher strike then you are up more.

Its temptingto jump: but I am going to wait until the market tells me to get out. I know that it will not be at the top of the market and that I will beat myself up because I didn’t recognise it. But that’s better than the pain of being out of the market and watching it go up – and you aren’t in it!

Heather Cullen Blog IN The Money ON Balance Volume

To the markets . .

We’ve already had a lot of charts but let’s do the usual round up.

SPY Charts

SPY gapped up on Wednesday’s open (the Fed) and looks as though it may be establishing a new support at 540. That would be good, but it is too early to tell. Otherwise, nothing ominous that I can see,

Heather Cullen Blog IN The Money ON Balance Volume

On the weekly chart, SY continuing its up trend.

SPYG Charts

SPYG is at an all time high, no ominous signs in the chart.

The weekly chart shows the uptrend continuing.

Heather Cullen Blog IN The Money ON Balance Volume

QQQ Charts

The QQQ chart continues strongly on its uptrend after its lack-lustre performance since February 2024.

Heather Cullen Blog IN The Money ON Balance Volume

And on the weekly chart it is making new highs and well above support:

Heather Cullen Blog IN The Money ON Balance Volume

VIX Chart

The VIX continues in low-volatility territory.


Heather Cullen Blog ITMeter

The week ahead . .

There is a lot of retail, building and jobs data out this week – and one of the Fed is speaking (I do wish they would just shut up). The futures look slightly positive at this stage:

Heather Cullen Blog IN The Money ON Balance Volume

I notice that Goldmann Sachs is becoming a bit more bullish:

And weighing in on the coming election:

Heather Cullen Blog IN The Money ON Balance Volume

But as we know from checking out previous predictions barely anyone gets it right.

Summertime in Greece

Heather Cullen Blog IN The Money ON Balance Volume

I’m still in the Cyclades. I am continually amazed that the Greeks, who developed geometry including conic sections didn’t use the arch in their architecture. Instead, they used post-and-lintel, just like this one in Naxos where I am now.  They didn’t put their geometrical knowledge to good use. The difference between theoretical knowledge and putting it into practice probably explains why fund managers  mostly lose money and financial planners are not rich!

So, as usual: fingers crossed for a good week!


Questions & Answers

16 thoughts on “On Balance Volume”

  1. Due to the miracle of Net Unappreciated Assets (NUA), I find myself with a tremendously imbalanced portfolio – over 95% of my net worth is in MSFT in a standard taxable brokerage account. Do you have an opinion as to whether or not the ITM strategy can work on a single stock rather than an index fund?

  2. Stumbled onto and into your books and i am taking a few days off to read them (from other studies and software development – I am …. I guess i am retired , i am not drawing a paycheck, i am 71). I made money a long time ago with call options and the studies i have done recently has confirmed to me that i was lucky, thats all.

  3. Besides being notified, I wonder if you backtested using QQQ as opposed to SPY. Thanks! Bob

    1. Hi Bob, I use ITM on QQQ and it has been very good. I haven’t backtested it throoughly as I didn’t want to include it in the ITM books as I didn’t want them to get too diversified.
      But, yes, I definitely do that and include it in my blog commentary.
      Hope this helps

      1. Thanks!

        And by the way, the red “this post is being edited come back later” seems to be stuck, at least on the last couple of week’s blog updates.

  4. Heather– do you ever cash in on your SPY LEAP if its up a given amount(say > 50%) then just buy another LEAP instead of waiting near the end of the year to roll out? Thanks- Steve

    1. Hi Steve,
      I don’t do it that way – but that’s not to say it is right for you. Basically, my main portfolios have the distribution 85% ITM (50 – 70% strike), 10% ATM and 5% OTM. I rebalance that every month or two, and roll out at the same time.
      My play portfolios have much more leverage which can be delightful – or scary. But if I blow them up I will be annoyed but not seriously dented.
      So – rolling whenever it takes your fancy is just fine. If you roll you are buuying and selling in the same conditions so all good.
      Hope this helps.

  5. I’ve noticed also that volume doesn’t have to be making huge jumps ( it’s nice to see of course ) … if you watch volume everyday is it red or green ? If you watch a long string of green volume days – I would ass u me that that’s bullish instead of the other animal…

    1. Ho ho ho – the ‘animal we dare not name?’
      You are right of course – a string of green volume days is definitely a bullish sign – in my opinion, anyway!

  6. Hi Heather, If I already purchased 1 SPY call option and eventually I have enough to buy a 2nd option, would I buy the 2nd call option the the same expiration date (but different strike price) so they both expire on the same date or choose a date 6 – 12 months from purchase date? I read your books in 2021 but started using your DITM strategy in June 2023. Thanks for sharing the strategy.

    1. Hi Jason
      I would buy options 6 – 12 months from the current date. There is no real advantage in having options with the same expiry date.
      And hope you are pleased with the reults you have been getting!

  7. Hey Heather, appreciate your work! As a full-time employee I like to keep it stupid simple. In addition I can outperform the spy or any other etf and thats Great.

    But how to deal with buying a deep ITM spy when its trading at $542 Like today? I can‘t get a DITM option for $10000 which is far away enough from strike price. e.g. buying 1 call at $270 would cost me roughly $28000 and breakeven would be +1% before commissions and fees.

    Would you suggest to trade another etf which is lower priced or what to do?


    1. Hi Chris – I think you must be looking at one of the original 2021 copies of the book? It has been updated every year, mainly because SPY has gone up so much it is impossible to get a 50% strike or even a 60% strike for 10k.
      The 2022 edition introduced ITMS – which was ITM for small accounts, where I becktested the ETF SPYG and found that the results were good. This meant you could get into the market for less than $4k, with the long term goal of making enough money to get into SPY.
      The original ITM firgures have all beem updated to the end of March 2024, and give the current parameters of what to buy. If you have an eBook you should be able to get the update ree of charge from Amazon. I suggest that is the best idea so that you have the most up to date info.
      Hope this helps

      1. Hey Heather, thats great news. I will try to get the recent updated book (I buyed it on Amazon indeed). Appreciate your effort to answer all our question. Wish you all the best!

        1. Hi Chris – hope you are successful with Amazon. I know some readers have got it updated with no problems, but others ran into unhelpful customer service people.
          Hope you get a good one!(and incidentally, I can’t help, I have to go through the same channels as everyone else – no special deals for authors!)

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