There are some rules to technical analysis of commodity futures that also partially apply to stocks. The saying goes that when the price is up and volume is up, that's bullish. When the price is down and volume is up, that's bearish. When the Volume is down and the price is down, that's bullish and when the volume is down and the price is up, that's bearish. So what does that really indicate. Well if the price went up that generally indicates that the buyers were more aggressive and willing to pay higher and higher prices on the day. If the volume on that day was high, it means a lot of buyers were more aggressive. If the price goes up but the volume is weak, that just means that the buyers were more aggressive that day but, there were few people buying. If the volume is weak and the price is down, you might think that would be bearish and it is somewhat but, it indicates that only a few sellers were being aggressive. If the volume is up but the price is down, that indicates that a lot of sellers were being aggressive. I said the rules somewhat apply to stocks because in commodity futures, you also have what is known as open interest (the number of contracts outstanding). That is similar to the number of shares outstanding in the stock market but outstanding shares is a fairly consistent number and changes very infrequently. In commodity futures, the open interest can change drastically in a day. So in futures, it's really volume up, price up and open interest up is bullish but, volume up, price up, and open interest down is bearish. But, in stocks that really doesn't apply. The volume and price data without the open interest factor is not as exacting. So, if you follow that rule, then you need to consider other things because you can have situations in stocks that actually seem to contradict those rules. At the top and bottom of the market in stocks, the rules for volume and price action seem to change. That is you can have what appears to be aggressive selling because the price was down on high volume but the volume actually is coming from a lot of buying at the low prices. In commodities, you would see the open interest decrease in a situation like that indicating that short sellers were covering there shorts and that closes out open contracts. So, volume up price down and open interest down is bullish in commodities. I hope I didn't confuse you there. In stocks high volume at the top of the market is generally bearish and high volume at the bottom of the market is generally bullish regardless of price action. There are exceptions to those rules too because of the lack of open interest in stocks.
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