Locating value with auction market data
by Donald L. Jones
There are two fools in every market. One asks too little, one asks too much.
— Old Russian proverb
The search for value in markets is a never-ending quest, since value changes with underlying economic
conditions. A fundamental approach to valuation, such as that of Graham & Dodd, (Security Analysis,
first printed in 1934), looks to the long term and projects an intrinsic value from earnings growth,
management quality, business prospects and the like. Technical analysis uses the daily summary data
(open, high, low, close, volume) to characterize market movement.
Recently, J. Peter Steidlmayer has proposed an auction market theory which evaluates the state of the
market from the perspective of a single day to long term (Markets and Market Logic, Steidlmayer &
Koy). Auction market analysis uses a new sort of technical data, one where the volume is identified with
each price traded. Value, as defined within auction market theory, is market acceptance of price, signified
by trading volume.
Higher volume price regions demonstrate a consensus of value by buyers and sellers. Auction market
data provides the mechanism to locate high-volume regions and thus, permits the location of value each
day after the close.