Monday 9 October 2006

Low Volume and Range

Continued low volume and range today. The Emini closed up a fraction at 1,359.25 on Monday. The market was very quiet today because of the Columbus Day holiday. We are expecting a breakout move but the question is in which direction?

Volume Range Image

Consolidation in the market leads to breakout moves

Today was the third consecutive day of very low volume and range. The indicator I use to measure volume and range I've called my Secret Weapon No. 1. It's plotted on the chart above and labeled Secret 1. Daily bars with low values are painted white and bars with high values are painted red.

Today's reading on this indicator was zero and readings on Thursday and Friday were both below the lower threshold value of 10. Typically at medium-term market tops both volume and range contract and this indicator shows white bars. However, some caution is required because today's reading is artificially low due to the Columbus Day holiday. In addition this indicator should never be used on its own - combine it with other non-correlated indicators to identify high probability turning points.

Include other indicators in your assessment

Supporting the argument for a breakout to the upside are the following:

  • We are in an uptrend and trends continue until they are exhausted
  • The NASDAQ rose today while the Dow hardly moved
  • Bond prices are greater than they were 20 days ago
  • Crude oil prices are in a downtrend
  • We had a bullish long-legged Doji candlestick pattern on Friday

Supporting the argument for a breakout to the downside are the following:

  • We had Trading Index (TRIN) divergences on Thursday and Friday of last week
  • Today the Hilbert sine wave completed its pattern (note: read more about this on later posts)
  • Bond prices fell sharply on Friday

But in this case …

The two lists are quite evenly matched and so I'll wait to see how the market develops during the day. Remember though, consolidation in the market like this usually leads to large breakout moves that can be very profitable.

Volume and range have been discussed in a previous posts in more depth. Check the Search by Topic listing in the navigation bar on the right for more articles or use the Search box instead.

Click here to watch a video tutorial and download free code for the Better Volume Indicator. Good luck with your Emini trading.

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