Thursday, June 11, 2009

Note to Narayana:

My dear Narayana:

You seem to be playing a perpetual game of "gotcha" with me. Apparently you think that my interpretations of the market's activity are simply ex post facto rationalizations of my irrational (to you) bullish market view. Thus you delight in pointing out what you see as inconsistencies in my interpretations of volume, advancing issues numbers, etc.

But you don't seem to appreciate the fact that the significance of market action arises from the context within which it occurs. The same type of action can have a very different implication early in a trend from the one it has late in a trend.

In the present example the e-minis have been locked in a 25 point trading range for the past 9 trading sessions. During any sideways movement volume normally contracts. Indeed, after an extended advance such as the one we have seen from the March lows one should worry if volume does NOT contract within a trading range. High volume in a trading range after a long uptrend would be a significant sign of impending weakness. In any event, any extended trend generally ends in high volume that develops near its extreme, often during the first stages of the reversal move in the opposite direction.

So there is nothing inconsistent in my failure to mention the low volume on rallies within the trading range. It is high volume within a trading range that would concern me.

8 comments:

Andrew said...

Carl,

I am sure most visitors to your blog, like myself, appreciate your insights and guidance. You take your time and effort to sharing your knowledge with us, again it is appreciated.

Balsamo said...

You're right, Carl

what's amaze me is not the trading range which is normal after such a run up, is the range of the 5 last closes...as narrow as 2-3 points on the Es!

I cannot remember having seen such a thing before.

I guess we a due for a strong move...on which side is anyone guess...

what do you think of the last four closing prices ?

PM said...

Balsamo,

I think this cluster pattern is extremely bullish.

My Best,

PM

Ron said...

Carl FWIW.Thursday's often rally mid-day into 1:00 or 2:00 and then pullback, based on satistical models.

lilies said...

Dear Carl,

Just want to say it is so thank you for providing this service for free, (have no money to trade), but it's just fun to watch you, i guess what separate the pro like you from the rest of us is , (your confident and unwavering bull), while we/i sit and fret about unemployment and the glass half full etc.... all the while the train has left the station haha

Kishore said...

Carl, thanks for explaining how to interpret the price volume action under different phases of a trend. Context is all important!

A trend can continue on for long times. A downtrend would normally capitulate with a high volume. But is it not true that an uptrend may reverse either with a high volume spike, i.e. capitulation, as you have rightly pointed out, OR a dry out of volume due to lack of demand? However, I do agree that the trend reversal into downtrend cannot become significant without, at least, some gradually higher volume participation or must the "supply shock" occur even for the downtrend to begin?

Narayana said...

I think whichever way prices breaks out first will be a fake out.

Kishore said...

"Breaking" news!!

We have been in an uptrend since March 9!

Carl's bullishness is totally justifiable by the charts, though hard-to-believe it may seem!

There has not been a any sell signal on the daily charts, at least since March 9.

So, what should we believe? The charts or the blogs by perma-bears?