Summary of Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD

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00:00:00 - 01:00:00

In the "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead" segment of the Investing with IBD YouTube video, Mike Webster and the hosts discuss the importance of chart tools, specifically the S&P 500 ETF (SPY) , for identifying market trends and potential opportunities. They compare the current market conditions to historical precedents, emphasizing the significance of understanding market psychology and staying informed about various market indicators. Webster shares his concerns about the reliability of volume data due to market mechanics, such as high-frequency trading and large fund managers using ETFs, and encourages the use of alternative chart tools to analyze stock price movements. The speakers also discuss their personal experiences in evaluating stocks based on price and relative strength data, using examples like ResMed and Cava.

00:00:00 In this section of the Investing with IBD YouTube video, host Justin Neelen and portfolio manager Arusha Paris discuss the current market conditions and the importance of using chart tools, specifically the S&P 500 ETF (SPY), to identify trends and potential opportunities. They mention that the S&P 500 has been leading the market lately, but a recent downturn has caused concern. Mike Webster, IBD's senior market strategist, joins the conversation to provide insights on market trends and the use of precedents as a tool for analysis. The discussion shifts to the importance of being flexible in market analysis and the significance of understanding market psychology and human nature. They also touch on the changing mechanics of the market and the importance of staying informed about various market indicators.
00:05:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speaker compares the current market decline of the S&P 500 with the NASDAQ market in 2003. Despite some differences in percentages, the speaker notes that the charts look similar, particularly in terms of the three waves down at the end of last year and the subsequent recovery. The speaker also mentions that from an Average True Range (ATR) standpoint, the volatility is similar. The speaker expresses uncertainty about the market's future direction and suggests waiting for the low to be above the 21-day and 50-day moving averages before considering a buy. The speaker also acknowledges the normalcy of a pullback to the 50-day moving average line and the importance of not getting too negative if the market recovers quickly as it did in 2003.
00:10:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speakers discuss their analysis of historical market trends using various moving average lines, specifically focusing on the 21-day and 50-day moving averages. They mention that in some cases, such as the 1983 market trend, the 21-day moving average line remained above the 50-day moving average for an extended period, indicating a strong bull market. The speakers encourage listeners to study these historical trends in detail as potential roadmaps for future market behavior, as they may provide insights for navigating potential market downturns. They emphasize the importance of being prepared for various market scenarios and using historical data as a reference point.
00:15:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speaker discusses various market precedents using charts as visual aids. He mentions the years 1986, 1997, 2000, 2003, and 2010, highlighting their similarities and differences. The speaker emphasizes the importance of visual analysis and the art of interpreting charts, as some events may not be fully understood at the time. He also mentions the significance of the 50-day moving average line as a key indicator for identifying power trends. The speaker encourages viewers to do their own research and study the charts for better understanding of market behavior.
00:20:00 In this section of the Investing With IBD podcast, Mike Webster discusses the current state of the NASDAQ and the importance of waiting for a "rally day" and a "follow-through day" before making significant purchases. He emphasizes the concept of a "follow-through day," which means not buying the dip or the bottom, but instead waiting for a rally day where the market closes in the upper half of the day's range. Webster also mentions his Stock Market Today videos and his appreciation for working with the team at IBD. Regarding the controversy over volume, Webster clarifies that he has always valued volume as a key indicator but has criticized the use of dirty volume in certain contexts. He built indicators for Bill O'Neil using volume and block volume, and in the past, he used level 2 for older systems.
00:25:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," Mike Webster shares his perspective on the importance of volume in stock trading but expresses his concern that the current measurement of volume is inaccurate. He recalls an early conversation with Bill O'Neal, where they noticed that volume didn't behave as expected during a pivot area. Webster believes that market participants have become smarter and have found ways to hide their orders, making volume a less reliable indicator. As a result, Webster has had to reconsider his reliance on volume data and is advocating for the use of alternative chart tools.
00:30:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," Mike Webster shares his experience with the importance of clean data for backtesting and his discovery that volume data may not be as reliable as it once was. He explains that historically, volume was a significant indicator of true demand due to high commissions and large spreads, but with the advent of modern trading methods and technologies, such as high-frequency trading and algorithms, the meaning of volume has changed. Webster suggests that investors consider the historical context and mechanics of trading when evaluating volume data and be open-minded to alternative chart tools for making informed investment decisions.
00:35:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speaker discusses the issue of "dirty volume" in the stock market and how it can make traditional volume measurement methods unreliable. He explains that large fund managers often use ETFs and other instruments to manage their risk, which can artificially inflate the volume of a stock. The speaker also mentions the impact of high-frequency traders and unusual volume on stock prices. He calls this "dirty volume" because it's difficult to quantify how much of it represents true investor demand and how much is just market mechanics. The speaker suggests using alternative chart tools and methods to analyze stock price movements and volume, rather than relying solely on traditional volume measurements. He concludes by encouraging investors to think critically about the volume data they see and consider the potential impact of market mechanics on that data.
00:40:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speaker recalls the challenges of analyzing volume data in the past. He mentions how unusual trading activity in specific stocks could significantly impact the overall volume on a composite level, making it difficult to remember and account for all such instances. He also discusses how market mechanics, such as the gradual stop of stock splits and the cost of oddlot commissions, further complicated the analysis of volume data. The speaker then shares how he started using dollar volume as an alternative to regular volume data, but even that came with its own challenges of accessing clean real-time data. Ultimately, he concludes that removing volume as a criterion for analyzing stocks has made the process simpler and more effective.
00:45:00 In this section of the Investing With IBD podcast, Mike Webster discusses his approach to investing, focusing on price and relative strength data, which he considers clean and trustworthy. He explains that he builds indicators based on price and uses tools to measure tightness in the market. Webster mentions that he doesn't use volume data, as he can't put a number on its impact and doesn't trust it enough to base decisions on it. He encourages listeners to think through the mechanics of volume and its potential impact on their investments. The conversation then shifts to discussing stocks on Webster's radar, starting with Inspire Medical Systems, a company that provides an alternative to CPAP masks for sleep apnea patients.
00:50:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speaker discusses his fascination with stocks that perform well despite unexpected news, using ResMed (RMd) and Cava (CAVA) as examples. ResMed, which is in the sleep apnea industry, had a good day despite negative news from Eli Lilly regarding apnea-related drugs. The speaker also mentions Cava, a stock they have been following closely, which broke out of its IPO base but failed during a rough market. However, the speaker suggests keeping an eye on it for potential future buying opportunities as it has recently pulled back to its 50-day moving average.
00:55:00 In this section of the YouTube video titled "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," the speaker shares his personal experiences in evaluating stocks based on his own preferences and market trends, using the example of the restaurant chain Cava. He mentions his skepticism towards the company despite its popularity, but still considers buying the stock due to its strong market performance, as indicated by its moving averages and relative strength line. The speaker also discusses his approach to evaluating newer companies with less price history, such as Astera Labs, by looking at factors like the underwriter, trading price, and volume. He also explains the importance of observing the price behavior after the initial public offering (IPO) and the significance of holding above the initial trading low.

01:00:00 - 01:05:00

In the YouTube video "Mike Webster: Volume Data Is Dirty, So Use These Chart Tools Instead | Investing With IBD," Mike discusses the importance of carefully entering positions in IPOs, using examples from the Google IPO. He advises investors to look for areas of resistance such as standard pivots or highs of blue days to enter. Mike also emphasizes the significance of confirming fundamental data and adjusting for volatility. He shares his personal investment plan for Google and warns about the risks of trading in IPOs, thin stocks, and turnaround companies. Mike advises traders to only engage in such trades with one account and to be prepared for volatility. The episode concludes with an announcement of the upcoming guest, Tom Basso, and a reminder for viewers to subscribe and watch on their preferred platform.