Tuesday, June 23, 2009

IBDs "The Big Picture"

I was surprised to read in IBDs "The Big Picture" this morning that "The lack of trading interest made the decline less damaging to the overall picture than it otherwise may have been."

In order to reach this conclusion, the editors are only looking at the volume in relation to Friday's volume, and indeed it was less. However, Friday was an opex day and volume is typically skewed higher. Excluding Friday, Monday's volume was the second highest in June. That, together with the fact that NYSE advancers were 2733 and decliners were 360, almost 8 to 1 negative, should clearly mark Monday as a distribution day raising the count to 4 for the NYSE, Nasdaq and SP500. Therefore, the next distribution day would be 5 and possibly signify a market in correction per IBDs method.

This demonstrates why it is so important for each trader to completely understand the method they are using and not to just blindly follow trading signals.

5 comments:

dave said...

" That, together with the fact that NYSE advancers were 2733 and decliners were 360..." ??

Traders noted the lack of volume from March thru June, but the mkt still rallied. Might the lack of volume "plague" a coming decline, too ? Besides, we can drop a long way on lack of bids without selling pressure.

Regards,
dave

dave said...

Andrew Burkly, technical analyst Brown Bros Harriman in Barrons, said the mkt's volatility level typically bottoms in the vicinity of July 1, so storm activity might be picking up before long.

Craig, i lightly edited his remarks for my notes & no longer have access to his exact remarks in Barron's (electronic edition) so i didn't use quotation marks above.

Do you have any knowledge of volatility (VIX) typically bottoming "in the vicinity of July 1".

Regards,
dave

dave said...

On 6/9 the VIX closed down -5.04%; the SPX closed up +0.35%.

Today, the VIX closed down -1.89%; the SPX closed up +0.23%.

Both 6/9 & today's SPX were spinning top candlesticks.

I think this combination of substantially down VIX with very little SPX price progress are signs of complacency & very little "bang-for-the-buck" price progress wise.

Regards,
dave

R. Craig Pritchard said...

Yes, No, Yes

Well, volatility does often decline dramatically from June through August, but I am not aware of a bottom pattern on July 1. It is possible.

dave said...

When Andrew Burkly said the mkt's volatility level typically bottoms ... so storm activity might be picking up before long i think he meant that VIX goes UP hence "storm activity might be picking up".

Regards,
dave