Thursday, February 3, 2011

Low Volume Pullback

More than anything it was the light volume that appeared most notable about Wednesday's action.. Light volume pullbacks are generally regarded as bullish. Yet in my research I have found that when pullbacks begin on very light volume the pullback has a good chance of deepening. Today’s mild pullback in the SPX occurred on the lightest NYSE volume in over 2 weeks.

These results suggest a mild bearish edge over the 1st 6-7 days. The edge is not the most reliable as the “% Profitable” is close to a coin toss. The edge lies in the fact that downside risk has strongly outsized reward.  I took a more detailed look at this last night in the subscriber letter.
A few caveats to consider.  The huge snowstorms may have had a dampening effect on volume.  Also, while this study suggests a possible downside edge, there are studies I am seeing that suggest upside.  Things aren't cut and dry right now.


eminiglobex said...

nr7 also yesterday

Anonymous said...

"..Things aren't cut and dry right now..."

Like when are they ever?

Collapse in treasuries past few days may indicate strong economic reports are ahead, in which case resolution to the upside can be expected.