QQQ Volume Spike is a Bottom Marker

When technical analysts learn about volume, they are taught that it is useful for helping to confirm (or not) what prices are doing.  This includes hopefully seeing expanding volume to confirm a price breakout.  And a head and shoulders structure should ideally have the heaviest volume on the left shoulder or the head.

For big ETFs like QQQ, it works differently.  As a gross generalization, QQQ volume works as a fairly pure inverse sentiment indication.  High volume is a sign of a bottoming condition, while a low volume day is a marker of a top.

Low volume days can be problematic, though, because sometimes volume is low due to holiday-light trading.  So one must employ at least a mental filter when evaluating low volume readings.

This week we saw a pair of high volume days, brought about due to the market's reaction to President Trump's announcement about imposing tariffs on European countries who won't go along with plans for the US to annex Greenland.  That news understandably got traders excited, although it was pretty quickly walked back when President Trump announced in Davos that he had arrived at a "framework of a deal".  Prices rebounded on the news.

But the sentiment message had already been posted.  The Jan. 20 selloff brought a big volume spike in QQQ, high enough to be a decent bottom marker, although clearly not the highest volume ever.

This phenomenon "works" because during selloffs, some traders turn to QQQ versus individual stocks for its greater trading liquidity.  It also serves as a shorting vehicle for those wishing to hedge overall portfolio risk but without turning to the futures market.  Similarly, when everyone is feeling happy and complacent, they don't trade QQQ as much and so a low volume day can be a marker of a price top. 

Getting an indication like this week's pair of high volume days does not tell us much about how far prices will move on a rebound.  That can vary a lot.  It just says that a bottom-worthy sentiment indication has announced itself.