Now Reading
Volume Pothole
45

Volume Pothole

by The MoleAugust 31, 2011

Although the tape looks pretty straightforward on a daily SPX chart the journey intra-day has been filled with traps and tribulations. What comes next may be determined by whether or not we’ll make it across this gaping pothole:

I posted this twice in the comment section yesterday but got very little response. Which surprised me a little as the implications of this chart are rather significant. As Scott already hinted at in his own update – we are in a low volume rut right now and I expect quite a bit of churning before we get resolution here. But let’s assume the current long squeeze does not extend and we are able to bridge the gap here – what would be our upper targets?
[amprotect=nonmember]
Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect]
[amprotect=1,13,9,12,5]

Well, we’ve got a 100-day SMA looming ahead around 1280 which will probably coincide with the upper 25-day BB by the time we may get there (notice my weasel speak here – we really cannot be sure). In essence I think that the would be hitting rather stiff resistance around 1280 and that’s when I would be starting to analyze the tape for signs of a downside reversal. Perhaps that would also coincide with my mid-September mark on my POMO swamp drain calendar.

My trusted RSI_EMA chart on the SPX allows for a bit more upside – never guaranteed but definitely supportive thus far. Once we hit the 80% mark I am gone and goner on anything resembling positive delta.

I took another look at my volatility combos today and they look pretty supportive – no big medium term divergences just yet – except maybe on the VIX:VXO, so let’s take a closer look at that one:

I’m using a ratio here as opposed to a delta but the story is the same. Anyway, since the 1987 crash it’s rather common to see across the board IV to outrun front strikes IV. And again, let’s remind ourselves that on this ratio BB breaches are more interesting and that long term divergences are really what we are looking for. Well, we still have room on the BB and I don’t see anything standing in the way of more upside.

Before you even think about touching any short positions take a glance at my NYSE breadth chart, which after some creative recoding is usable again – I had to truncate the huge spike we got on the D/A panel two weeks back. Anyway, look at the recent cluster of 10.0+ spikes – a lot of energy has been expended to drive this turd higher and this is not the type of tape I would feel comfortable shorting right here and now. Best to wait for some clear divergences plus I really want to see an accumulation of closes within the usual < 5.0 range.

Bottom Line: The spoos are currently sitting above their daily 25-day SMA plus we are above both the 25-week and 100-week SMA on the SPX. Let’s not forget the 100-month SMA which we breached yesterday. In addition we are inside a big volume hole that yet needs to be overcome. If we manage to somehow claw our way higher then this will represent fine support for once things start to slide lower again – perhaps late September. But that’s all Isaac Asimov for now because nothing happens until we make it across the volume pothole we’re stuck in right now.

Cheers,

Mole
[/amprotect]


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • http://practicalt.blogspot.com/ Gold_Gerb

    traps and tribulations, now this is why the leeches keep coming back!
    😉

    churning would be good, around a 350 day moving average.

    -GG

    spell check complete.  (low volume rut right now?)
    certainly you were thinking of Russell.

  • Anonymous

    Thanks Mole, very interesting assessment. In times like these caution is more than warranted. 

  • Anonymous

    Thanks Mole, very interesting assessment. In times like these caution is more than warranted. 

  • Fearless

    Scare the children… Scare the children…

  • tradingmom

    Mole, wht do you think about that upper zero trendline now?  Please?

  • Anonymous

    “POMO Swamp Drain Calendar”, LMAO

    Swamp is a great one word description of this market.  It kind of reminds me of a few years back when we took a Swamp Tour down in Louisiana.  The multitude of colors and mystery of the swamp were absolutely awesome.  At the same time we had to be cognizant of all the alligators and poisonous snakes waiting for us to make a wrong move.  :)   

  • http://practicalt.blogspot.com/ Gold_Gerb

    SPX 5m touching the 200ma

  • Kudos

    I believe we have officially scared the chiildren. Yields almost at HOD, very divergent from equities, AUD/JPY pair has been flat through this last drop and the zero is diverging as well.

  • Anonymous

    Again you are probably right. Zero is not supporting this down move…so far

  • Kudos

    Oh zero, how you keep paying for yourself. Love the combination of indicators, when divergences line up just BTFD.

  • http://evilspeculator.com molecool

    TM – I draw them when I feel comfortable. 

  • http://evilspeculator.com molecool

    Seriously….

  • tradingmom

    No problem, just so long as you don’t mind if I keep asking!  In the meantime, I’ll keep adjusting my translucent piece of paper across the monitor :-)

  • http://evilspeculator.com molecool

    It’s the gift that keeps on giving.

  • http://evilspeculator.com molecool

    LOL – I was just about to propose you use a marker on your flat panel display – hehe…

  • http://practicalt.blogspot.com/ Gold_Gerb

    Market close in < 20min

    Month End – straighten up your books.

  • TwinTurboRX7

    Mom…which trendline is this?

  • Anonymous

    Where’s that acceleration line?  Can someone ballpark it for me?

  • Fearless

    The Polar Express ran over many bears and bulls during August. I shall lock in some gains now. KO ride has been fantastic.

  • http://pulse.yahoo.com/_OTAZAD4MZMGPRHWPEMAVGJULV4 Q

    Looks like a bear market to me. S&P 1000 etc. I don’t believe in upside targets.

  • Anonymous

    Thanks to ZL, I covered all my day shorts just in time. 

  • Anonymous

    Trade the tape, not what you believe in. Otherwise you’re going to end up broke.

  • http://evilspeculator.com molecool

    [wipes tears]

  • http://evilspeculator.com molecool

    ????????????????????????????????­??????????????

    D   A   I    L   Y      Z   E   R   O     H   A   S      B   E    E   N      U   P   D   A   T   E   D

    ????????????????????????????????­???????????????

  • http://evilspeculator.com molecool

    NYSE A/D ratio: 1.86:1 (slightly higher than yesterday) – D/A ratio: 0.537:1.

  • Anonymous

    AUD/JPY long on the breach of 82.20, short on the breach of 81.60. This has been the trading range for 2 days now.

  • Anonymous

    SMA 5 today that is just around 1200 spx.

  • Anonymous

    I think your training is finally working mole….

  • Anonymous

    Today’s volume is again higher than yesterday.

  • Fearless

    And retails are more bearish today than at 1120. The acceleration line test, examined on some blue chips, may be over. If we get weakness tomorrow morning it should be viewed as BTFD as long as we stay above 1205.

  • Anonymous

    Got that! :-)

  • grednfer

    Big M,
    I saw your chart….thx for posting a chart….sheesh….back in the day you used to postem all the time.

    So I’ll bite……why does the lack of volume in your pot-hole create resistance?

  • Anonymous

    Mole, can you post todays divergences on ZL (or video) so that we would want to subscribe? :))

  • http://evilspeculator.com molecool

    Some of that tough love I have been dishing out seems to be paying off :-)

  • Anonymous

    Tomorrow around 1205. See Fearless comment above.

  • http://evilspeculator.com molecool

    You are right – ISEE equities closed at 130 today – on 8/19 it closed at 135. I was watching the stocktwats stream during the little sell off and the bearish Cassandra calls just kept coming.

  • http://practicalt.blogspot.com/ Gold_Gerb

    Risk is On.  52!? – too rich for me.  not 70 or 90 levels, but woo-wee.
    congrats to anybody who caught some of the bottom.
    http://stockcharts.com/h-sc/ui?s=$BPSPX&p=D&yr=0&mn=6&dy=0&id=p97074574877

    (now I understand the 20 level, hold your nose and pick up some blue chips strategy)

  • volar

    Ah how we all have grown :)

     

  • http://practicalt.blogspot.com/ Gold_Gerb

    setup a service that scans the twits, and create a counter signal.
    ie: gold twits above average appearance?  short it signal.

  • Anonymous

    Yeah, I also don’t get the volume hole thing. Couldn’t the hole be caused by the market spending very little time at those levels? The levels that have high volume a transversed by many bars … the “hole” is only crossed by a couple.

    Granted, if the market flops around in the hole the hole ought to get filled. Is this based on a kind of revert to mean idea? That the volume at the hole is so much less then the avg that the massive outlier will be rectified by the market spending more time at these levels? The whole hole thing imo just reflects the short period the market spent in that range.

  • Anonymous

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨ 
    ¨°º¤ø„¸ N E W „ø¤º°¨ 
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • Anonymous

    I suggest you read the seminal books on market profile by Dalton. The idea is to conceptually view the market as an auction process

  • Anonymous

    He only had to get smacked a hundred times before he learned. Quick learning indeed

  • Anonymous

    So, who are the alligators?  :)

  • grednfer

    Love your name!
    I was looking for a content answer as well, but none to be found.

    Lack of volume as resistance (or support) is a theory within the “market profile” concept introduced by a guy name steidlmayer in 1984.
    The daltons wrote a book about it in 1999. The relevance of such anitquated theory is very questionable in todays trading environment which is dominated by “spot momentum”.

    And yes the whole MP concept is a mean reversion concept which promotes retracement trading over momentum trading. Which do you think applies to contemporary markets.