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Commentary

MV Chronicle: The Beast Called Volume and more…

In the April 9, 2011 edition of the MarketVision Chronicle, I write about The Beast Called Volume:

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With the incredible match last weekend, and a great victory for India it’s time for some celebration! Additionally it turns out that the government will say okay to Anna Hazare’s claims and the Jan Lok Pal bill will be drafted with both government and civil society input. It’s more about the Indian rejoicing in having stood up to the government than anything else, but that’s still a good reason to cheer.
This week, we talk about Volume in stocks and how it should impact our analysis of where the index and specific stocks are going.

The Beast Called Volume

The daily price of stocks provides feedback like we’ve seen in recent newsletters – prices can be deconstructed through moving averages, advance-decline indicators and P/E ratios.

One other thing that daily prices give you is volume. Volume is the number of shares traded every day. Analyzing Volumes is a difficult task, primarily because it is misleading. Do you rank companies by numbers of shares traded? That doesn’t make sense – a Unitech trading at Rs. 40 will have a lot more shares traded than, say, an Infosys at 3000. (In the US, they do compare total number of shares traded, and even their commissions used to be on a per-share basis – concepts that are so alien to India!)

But when you take the same stock, you can compare the number of shares traded, if the stock price hasn’t moved much. Let’s look at the Nifty now.
Nifty Volumes

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