Trading volume can be used as an indicator of changes in the market. Volume can tell you if a trend is likely to continue... or if it has run its course.
During the week of October 6-10, we saw several things we had never seen before. For one thing, the volume on the New York Stock Exchange reached 11 billion shares in a single day. A new record. Plus, the Spyders - the ETF that tracks the S&P 500 - saw over 800 million shares trade in a single day, and the weekly volume for the Spyders reached an incredible three billion shares. Those were both records.
You might also note that the week of October 6-10 saw the worst drop in the history of the U.S. stock market. That huge drop, coupled with the record volume, could indicate a capitulation point for the market - when everyone gives up and sells their stock. The second week of October could have been just that, the surrender of the bulls.
I would not recommend diving headfirst back into the market. There are going to be numerous layers of resistance to cut through. This market is best played cautiously. Lower your allocations and keep some cash on the sidelines. If, indeed, this turns out to be a bottom and a new bull market starts from here, there will be plenty of time to get back in.
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