Low Volume Equals Up
by Jerome "Mel" Hickerson
Season's Greetings and best holiday wishes to everyone. I'll be brief with my weekend message and likely be brief all this week as I intend to spend extra time with family during the holidays.
Three and half sessions during the week and almost enough volume to fill a decent trading session. A week ago Citi traded almost twice as many shares in one day as the SPX did on Thursday.
None of the last three sessions reached a six point range. But there is something important revealed within the stats this week. The weekly range was 21.17 points. The weekly gain, Thursday's close over the previous Friday's close was 24.01 points. The SPX managed to gain more than its weekly range due to the Monday gap. That is a bullish feat.
The important fact revealed by those stats is something every trader already knows but often ignores: Low volume equals up. Do not ignore this fact. I went to the data to verify this fact and this is what I find:
In the last six months, 63 sessions have had 80% or less of the 2009 average volume.
16 of those 60 sessions closed red, seven were negative by 10 points or more.
13 of the 47 positive sessions closed up by 10 points or more.
27% red; 73% green.
Stepping back and looking at the 27 sessions with less than 70% average volume:
Five closed red, three by more than 10 points. (One of these sessions was the post-Thanksgiving "Dubai Default" session.)
22 sessions closed green, five by 10 or more points.
18.5% red; 81.5% green.
The evidence suggests that four of every five sessions with 70% or less volume is a positive session. This week is likely to see light trading volume. You make the call; it's your money.
We all see evidence of a pullback on the horizon (see chart). We all want to get short and take advantage of what we see coming. But wisdom dictates caution knowing that the volume this week is likely to be low. I'd much rather miss the first eight or ten points of a downward move than get short too soon and watch the SPX tack on another 20 points and stop me out before pulling back.
Knowing that a pullback is coming and having the right timing to profit from it are not necessarily the same thing.
Monday, December 28
Auctions
11:30 3-Month Bill Auction
11:30 6-Month Bill Auction
01:00 2-Yr Note Auction
Mel’s Random Hits:
• Total tick for the day was over +188,000. An amazing number for a shortened session. For the second day in a row, there were no negative time periods. Volume is lacking but breadth is bullish. Total tick for the week was over 718,000, and this was just for three and a half sessions. The last week over 700,000 was October 5th through 9th and the SPX had five positive sessions gaining 47 points. The following week had three positive closes gaining 17 more points.
• The day's range was 5.89 points. I know it's a holiday time period but the narrow range exceeds what is normal for a holiday period.
• The day's volume was 22.5% of the average 2009 daily volume.
• 47% of the SPX stocks closed with two day RSI above 90. 64% closed with RSI above 80. 3% closed with RSI below 20 and 1% closed with RSI below 10. These are numbers such as we haven't seen since late July. If you were short during the late July ramp, you remember quite well.
• 89% of the SPX are above their five day moving average, 85% are above their 10 day average, and 84% are above their 20 day moving average.
• 3% of the SPX stocks closed below their most recent previous lows.
• 44% of the SPX closed above their most recent previous high.
• 68.8% of stocks closed in the top half of the day's range. (31.2% closed in bottom half.)
• 7.8% of stocks closed in the bottom 20% of the day's range.
• 21.4% of stocks closed in the top 10% of the day's range.
• 35.8% of stocks closed within 2% of their 52 week high.
• 23.8% of stocks closed within 50% of their 52 week low.
• 39.8% of stocks closed within ¼% of their high for the day.
• 10.4% of stocks closed within ¼% of their low for the day.
• 70.0% of the SPX closed up from the previous close; 58.2% closed higher than the open.
• Sectors weaker than the SPX for the day: Energy, Consumer Staples , Consumer Discretionary, and Health Care
• Sectors stronger than the SPX for the day: Basic materials, Utilities, Technology, Financials, and Industrials
• The $SOX index strength was stronger that the SPX.
• 10 of last 12 sessions have closed green. Since the Dubai Default, five of 19 sessions have closed red and the SPX has gained almost 36 points.
• The 2 Day RSI of the SPX is 95. The Dow RSI is 94, NASDAQ is 97 and Russell 97. The average of the four indices is 96. This last occurred on November 10th and the SPX managed a 17 point increase over the following week.
• The 4 Week RSI of the four indices has reached 80. The 4 week RSI is a longer-term RSI and is useful when looking at longer trends. The last time the indices reached this level was September 21st and the SPX lost 21 points that week. The RSI is really arguing for a pullback; the low volume is arguing for more upward movement. I'll wait to see what the market decides and then jump on.
• I've stated before that I do not see the rally persisting above 1150 unless the XLF sits atop a rising 50 day moving average. Thursday's close saw the XLF regain its 50 DMA. It is not yet a rising 50 DMA but the first step is getting above the average, then holding it and making it rise. I do not expect this to happen, but I'll be keeping an eye on it because it is a significant technical event in my opinion.
Have a great weekend!
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"Mel"
ETF’s we trade:
Ultra S&P500 ProShares (NYSE: SSO)
Ultra Dow30 ProShares (NYSE: DDM)
Ultra QQQ ProShares (NYSE: QLD)
PS UTLRSHRT QQQ (NYSE: QID)
UltraShort S&P500 ProShares (NYSE: SDS)
UltraShort Dow30 ProShares (NYSE: DXD)
PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
Direxion Daily Small Cp Bull 3X (NYSE:TNA)
