Low Volume Tops

The volume level is one of the best indicators for knowing when to sell a stock. For example, a three month chart of ERX, the 3X energy bull ETF, showed a relatively low volume of 2M shares in the middle of July 2011. ERX was selling for more than $80 per share then. When the August 2011 Congressional impasse began over the debt ceiling, ERX started dropping dramatically on much higher volume until it finally bottomed on the first trading day of October.

ERX was trading at around $30 per share when it had a buying volume surge of more than 8M shares on the second trading day of October 2011. As of October 14, the volume has dropped down to 4M shares. ERX may never reach its former high anytime soon. However, when the volume drops to 2M shares again, that may be the intermediate top for ERX. It so happens that the stock market in general is following the pattern of ERX, too. One reason for that is that ERX is an ETF stock which comprises some of the world's biggest oil companies. So, as oil goes, the market seems to follow, or vice versa. Anyway, it may be time to go short again whenever ERX falls to a low volume level of 2M shares of trading per day.