Friday 16 November 2007

Volume Patterns - Stopping Volume on Indices

Back from a month traveling in France, Italy and Egypt. Thank you for everyone's patience and hope your trading is going well.

Highlight was the Old Cataract Hotel in Aswan overlooking the River Nile. This was the setting for the movie of Agatha Christie's "Death on the Nile" - totally relaxing and highly recommended. View of the Nile at sunset from the hotel shown below.

Egypt Old Cataract Hotel Image

Now to the markets. Friday saw Stopping Volume patterns on all the indices. Stopping Volume occurs when the volume is greater than the previous day (or bar) but the range is less than the previous day (or bar). This volume pattern signals a pause in the current trend and beginning of a pullback, sometimes leading to a complete trend reversal. The daily Dow chart is shown below.

Stopping Volume Dow Image

Stopping Volume Pattern on Dow (St = stopping volume)

The NASDAQ has been the strongest of the markets over the last month. The Stopping Volume pattern also appeared on Friday's NASDAQ. See the chart below.

Stopping Volume NASDAQ Image

Stopping Volume Pattern on NASDAQ (St = stopping volume)

Finally, the chart below shows the Russell with Stopping Volume pattern on Friday.

Stopping Volume Russell Image

Stopping Volume Pattern on Russell (St = stopping volume)

I'm not convinced that the current down trend in the Emini is over, however, we might see a pullback this week. In addition to Stopping Volume there are other positive signs:

  • Versus the Bond market the Emini is over-sold
  • Bond market staged a strong rally 20 days ago
  • TRIN divergence on Friday (positive TRIN but Close < Open)
  • Yen appears to have made a higher low and could start trending up
  • Thanksgiving this week and markets tend to be strong going into a holiday

Good luck with your trading. You can read more about the Stopping Volume pattern here.

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