Sunday 16 May 2010
Shaunkris 89:
The sharply increased volume going into the lows, culminating with the peak volume at the low, the low a wide-range bar, [and it is difficult for me to see
exactly where the close was...it looks like it could be under the 4,500 level],
begins a compelling story.
The increased volume as low was made reflects a likely transfer of risk, from
weak to strong hands. What we know about smart money is that it does not
sell lows or buy highs. What we know about the public is that it is prone to
selling into lows, buying into highs. That appears to be the process here.
Two considerations, for now. The first is the speed with which the decline
occurred. That is was so fast usually means a relatively weaker recovery. Actually, three considerations. I just noticed the position of the last high
prior to this low. The second consideration, now added, is the fact that
XJO, [do not know what that is, but a chart is a chart], has been in a broad trading range, and this last low has had to clear out a lot of stops under the previous November '09 and February '10 swing lows.
My guess is that the function of the low was to wash out all the stops under the market, get rid of any weak holders, and make XJO look unappealing, at least for now.
Note how the last high occurred on small range bars, symptomatic of a lack
of demand, and a lack of demand can lead to sellers coming in..which did occur. Contrast that with the wider range bars at the lows, coupled with the increased volume. I am digressing a bit, but it stems from the fact that the low and volume you question is better viewed when taken in context with the surrounding activity.
The third consideration is the quality of the rally off the low. As was already
pointed out, the volume diminished, not totally unexpected given the speed
with which the decline occurred. We do learn a few things from it, however.
The position of the close at the low, on the highest volume since December,
suggests there were buyers, not only on that day, but the other high volume days preceding. This goes back to putting your day in question in context to other market activity, for it is an evolving process, and in this portion of the chart, the more active transfer of risk.
This current rally should/will lead to a retest of the low, and it is the quality and character of HOW the retest develops that will provide the important clues for market direction. If the low is retested on smaller range bars with declining volume, this tells us that supply, [selling] has dried up.
If the retest shows wider ranges and increasing volume, the low may not hold. Given HOW the low occurred, and where, it would appear the odds favor it holding. All you need now is confirmation from watching the retest.
From my perspective, there is a lot moreto it than was initially surmised here.
Cheers!
Apologies for the lack of line consistency. I am not familiar with how the lines end/begin for the next one. Subtance over style, if there be any substance to be found.