Good question about exhaustion volume and market tops by email today:
“Do market tops and bottoms always come with exhaustion volume?” Phil
The video explains that on shorter time frames (day trading type charts) you’ll always see Exhaustion Selling and Exhaustion Buying volume patterns at market bottoms and market tops.
My reasoning for this is that day traders or short term traders will always be in or out. Whatever volume bought into the market has to sell out. Therefore the volume patterns will be symmetrical – the market is in balance on shorter time frames.
However, on longer time frames (investing type charts) you’ll always see Exhaustion Selling at market bottoms but you won’t always see Exhaustion Buying at market tops (or at least intermediate market highs).
On these longer term time frames you’ll see far more buy-and-hold type trading activity. Volume that is sitting on the sidelines just waiting for a minor correction to buy into the market. And that money is “sticky” – it won’t be selling out at minor market tops, it’s holding for the long term.
So the Exhaustion Volume patterns you see on daily, weekly or monthly charts tends to be lop-sided. More Exhaustion Selling signals and fewer Exhaustion Buying signals.
Right now we happen to be seeing a few Exhaustion Buying patterns on the daily charts of the market Indices. So that’s not so usual and I’m watching closely.
We’re also creeping up and up with smaller and smaller price swings – something Didier Sornette (a French mathematician) has identified as marking a bubble top.
Read more about Didier Sornette here:
Good luck with your Emini trading.