A Matter Of Volume

Yesterday after the close Scott and I were musing that today would most likely bestow us with a weak hand shake out session. And thus far our paranoid mental delusions apparently seemed to have been spot on once again. What really stands our in particular today however is this chart:

What we are plotting here is NYSE UVOL, DVOL, and the magenta is the ratio. The latter obviously roughly represents what’s happening on your favorite cash index, i.e. the Dow, S&P500, or Nasdaq. I would however like to direct your attention to the red plot lines plotting DVOL. Yesterday’ was obviously a very strong DVOL day, no surprise there as it also was a bonafide DOWN trend day.

Now isn’t is strange to see such a weak DVOL signal a day after a major sell off? Not does it just thwart in comparison to yesterday’s DOWN day – no, it also is lackluster in comparison with the average UP day! Admittedly at the time of this writing we have another 2.5 hours of tape to go and even given that the only other day that compares in recent weeks is the March 1st session.

Scott has often made a case about ‘follow up’ days – it’s nice to see a one day sell off but what happens next, and in particular at important inflection points is where the rubber meets the road. And apparently, at least judging by this chart, there is almost no selling pressure present today. A fact which makes your humble market megalomaniac a little suspicious to say the least. Of course this may all be part of the plan, an almost obligatory attempt to shake out some weak hands before committing to either a trend change (i.e. lower) or a continuation higher. Picking a direction however is tough to do right now by merely looking at this volume chart. So let’s look at a bit more evidence:

Exhibit A: The Dollar – and it’s really the moment of truth for ole’ bucky as a push above 80 would most likely result in an acceleration higher.

Our more long term volume profile chart reveals that the 80 mark has definite meaning. Plus there is sufficient volume to drive this thing higher, at least toward 80.5. Now success or failure here will make a hell of a difference on the equities side.

Exhibit B: Mr. VIX – which closed inside the 2.0 BB yesterday, potentially leaving the door open to a more sustained sell off. There’s really nothing else to see here – no VIX buy signal (relative to equities), no cookies. What weakens the bearish case a little here is how quickly we are pushing against that BB, that was quite a jump yesterday. But I guess that the only way to get that BB to start pointing upward again. Of course one down day is not going to make much of a difference and in turn may just feed the dip buyers. And that’s the head scratcher for me right now – a push outside would have been more advantageous technically – why close inside? And then stop selling the next day?

Exhibit C: It’s been all fun and games for the dip buyers since yesterday’s lows. However we are now right at the 25-day SMA and that’s again where the rubber meets the road. A push above here would be a call for all bulls on deck, so what happens right here and right now, today – is important. I would also very mindful of increasing selling volume right here.

Exhibit D: AUD/JPY – similar story there. We already tested the 25-day SMA today and thus far it has been holding. Next test will be the 86.1 NLSL – if we climb back above then it invalidates the sell signal and we’re back to whence we came.

USD/CAD – We are retesting that NLBL sitting right at parity – very much in tune with my DX chart. Not part of my exhibits but somewhat related. On a side note – it seems that those dirty barbarians in the North did not respond kindly to my taunts 😉

Gold is looking very interesting today but I say that with reservations – you’ll understand once you see my silver chart. Well technically we’ve got a possible ‘last kiss goodbye’ situation here and I would probably want to be short for a ride into 1600 or maybe even lower.

But then here comes silver trampling all over my paradigm by doing the exact opposite in that we already tested the 100-day SMA (and lower 25-day BB), which technically puts us in a possible long setup. So this puts me in a strange position in that I probably have to do some type of pair trade or perhaps take both positions and let one of them shake out. I can always flip the loser into the direction of the winner and the beauty is that it would technically strengthen the case of the winning side as one of these must breach the 100-day SMA one way or the other.

Bottom Line: Today’s tape is absolutely engineered to shake out weak hands. We can not yet say for sure which way this is going to turn until we see more activity on the Dollar, the spoos, and the AUD/JPY. Watch the volume profile on the NYSE – if it’s too weak on either the UVOL or DVOL side then it’s most likely a trap. Watch your tail.
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Cheers,