Buff Dormeier, CMT, the world's foremost expert on volume analysis, discusses the importance of volume in portfolio management. He shares his insights on volume data analysis, capturing market turning points, and using volume as a key factor in decision-making. The podcast also explores concepts such as volume weighted prices and the VPCI indicator, and highlights the practical importance of technical analysis in managing investments.
Volume analysis is the most important factor in a portfolio manager's toolkit.
Using volume analysis, investors can determine when to be on offense or defense in their investing strategy.
Volume analysis helps decode price movements and gain insights into market trends.
Deep dives
Bullish Outlook with Capital-Weighted Volume
The volume analysis suggests a bullish outlook for the market. Capital-weighted dollar volume and capital-weighted volume have both broken out to all-time highs, indicating strong money flow. This suggests that the market could make new highs as volume leads price. Recent trends also show a rotation of money from high-capitalized stocks to neglected areas like small caps and dividend stocks. This shift in capital flow is supported by the drop in the 10-year Treasury yield. Overall, the volume analysis points to a positive market environment with potential opportunities in overlooked sectors.
Tactical Approach with Defense and Offense Strategies
The volume analysis is used to inform a tactical approach to investing. By monitoring capital-weighted dollar volume and capital-weighted volume, investors can determine when to be on offense or defense. When these indicators are in uptrends, it is time to be on offense and focus on sectors and stocks with the highest capital flow. Conversely, when the trend shifts, it is time to switch to a defensive strategy and protect against risk. The volume analysis also helps identify bottoming patterns, such as V-shape and W-shape bottoms, which signal potential market lows. Tactical rotations from offense to defense and back are crucial for managing risk and capitalizing on market opportunities.
Decoding Price with Volume Analysis
Volume analysis plays a crucial role in decoding price trends. While price represents the DNA of the market, volume acts as the RNA that interprets the code. By analyzing volume, investors can decode price movements and gain insights into market trends. Volume confirms or contradicts price trends, providing indications of market strength or weakness. The VPCI (Volume Price Confirmation Indicator) is a tool that helps decode trends by analyzing the asymmetry between price and volume. High VPCI readings imply volume supporting price, while decreasing VPCI suggests potential trend reversals. Volume analysis provides a deeper understanding of market dynamics and enhances decision-making.
Applications and Limitations of Volume Analysis
Volume analysis extends beyond equities, with potential applications in commodities and other asset classes. The approach can be effective on various timeframes, including daily, weekly, and monthly charts. However, intraday analysis may not be as reliable due to U-shaped volume patterns. Risk management plays a critical role in volume analysis, with the need to recognize when to shift from offense to defense. Volume analysis is part of a broader mosaic that includes other technical and fundamental factors. Additionally, the combination of academia and practical investing through student-managed funds can enhance financial education and provide real-world experience. The volume factor is an essential tool that helps investors navigate the market and make informed decisions.
Shift in Capital Flow and Market Rotation
Recent trends reveal a shift in capital flow and market rotation. Capital-weighted dollar volume and capital-weighted volume suggest money moving from high-capitalized stocks to overlooked areas like small caps and dividend stocks. This rotation is supported by decreasing capital-weighted dollar volume for high-capitalized stocks. In the broader market, benchmarks like the Russell 3000 and advance decline lines are showing positive momentum. The changing landscape presents potential opportunities for investors willing to explore neglected sectors and stocks. The volume analysis provides insights into these market dynamics and helps identify these shifts in capital flow.
It's time to turn up the Volume! Our special guest this month is one of the most prolific contributors to the technical analysis body of knowledge today and arguably the world's foremost expert on volume analysis. Buff Dormeier, CMT asserts that volume - when used correctly - is the most important factor in any portfolio manager's toolkit.
We dig deep into the intricacies of volume data and how it informs the message of the market vis a vis price. We got a glimpse of the painstaking efforts Buff takes to decompose the reported data sets and reconstruct cap-weighted and dollar-weighted volume for his analysis at the index, sector and single security levels. But most importantly, Buff shared how he thinks about managing investments not just with offense and defensive strategy, but with "special teams" to capture the explosive moves at key market turning points. You've probably guessed, but volume is the key factor in making those all-important decisions.
Our favorite quote from one of Buff's recent presentations was: "If Price action is the DNA of the market, then volume is the RNA of Price" which helps decode and activate the critical information we can glean from price action.
Enjoy Episode #35 of Fill the Gap with award winning author, magnanimous advocate, and Chief Technical Analyst at Kingsview Investment Partners, Buff Dormeier, CMT.
Fill the Gap, hosted by David Lundgren, CMT, CFA and Tyler Wood, CMT brings veteran market analysts and money managers onto a monthly podcast.
For complete show notes of every episode, visit: https://cmtassociation.org/development/podcasts/
Give us a shout: @dlundgren3333 or https://www.linkedin.com/in/david-lundgren-cmt-cfa-63b73b/ @_TBone_Pickens or https://www.linkedin.com/in/tyler-wood-cmt-b8b0902/ @CMTAssociation or https://www.linkedin.com/company/cmtassociation
CMT Association is the global credentialing authority committed to advancing the discipline of technical analysis in the financial services industry. We serve members in over 137 countries. Our mission is to elevate investors mastery and skill in mitigating market risk and maximizing return in capital markets through a rigorous credentialing process, professional ethics, and continuous education. CMT Association formed in the late 1960s with headquarters in lower Manhattan, NY and Mumbai, India.
Learn more at: www.cmtassociation.org
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode