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IBD uses the NYSE volume for the DJI, S&P500 and the NYSE. Today (3/5/12) they say the higher volume gave the NYSE and the S&P500 both distribution days. However, it’s the same volume for both indexes. It doesn’t make sense. Isn’t the volume for the DJI, S&P 500 and NYSE all computed separately for each index? Why not report the daily volume for the stocks making up the index? What could possibly be the benefit of using just the NYSE volume for all three indexes. If volume is not computed separately for each index then why not? This doesn’t make any sense to me and I would certainly appreciate some comment (particularly from IBD). This seems to destroy any price/volume analysis or reliance. Makes distribution days a farce.
I'm new to the game so I can't speak authoritatively on the reasons, but from a layman's perspective I can see a potential issue when stocks in the index are changed/companies issue stock splits, etc. Any event that changes the number of shares could cause a step-change in the volume, throwing off the continuity in a way that may or may not be indicative of the overall market movement for that day. To prevent this, you'd end up having to normalize the volume somehow, which gets you away from a true measure of shares traded anyway.
This may not have anything to do with the actual reason IBD/MS does this, it's just a thought. Also I'm not sure how the weighting of each stock in the index affects the volume.
Perhaps history shows that the behavior of the "true" volume of the index correlates closely enough to the NYSE volume that it's not worth making the distinction? Seems much more reasonable for the S&P500 than the DJI, but then IBD does not use the DJI to track FTDs and DDs
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