Sunday Evening 6 March 2011
Technical Analysis 101 says volume goes with the trend. It
expands in an up market, reflecting more buying interest, and
volume tends to diminish on corrections when buyers retract
and sellers are not there in large enough numbers to upset the
direction. Conversely, when a market goes down, volume
increases on declines and lessens on rallies. In Technical
Analysis 202, it is known that smart money buys low and sells
high. In other words, smart money accumulates positions
at/near bottoms, marks up price and then distributes, or sells
at highs. One thing is certain: smart money DOES NOT buy tops.
In viewing the daily chart, there is no question that the highest
volume since the July 2010 lows has occurred at the current highs.
There is a disharmony between volume, [effort] and price, [results],
of late. The three high volume days at the end of February did not
result in any downside follow-through. Nor has the high volume in
March. It is also obvious that when price rallies, it does so on less
There has been little to no payoff for the high volume sellers, and
the low volume buyers are struggling. Right now, price is in the
middle of a developing trading range. This recalls a little expression
in trading, "buy the dumps, sell the humps, but don't diddle in the
middle." There is actually sound reason for taking the latter to heart. In the middle, the level of knowledge is at its lowest. Price
can go either way, up to the top of the range, down to the bottom,
without making any difference, so there is simply no edge to buy or
sell in the middle of a trading range. This is where price currently
What to make of the disharmony? There is likely distribution going
on. Smart money is using the higher price level to unload, hence
the increase in volume on declines. It takes time to distribute, so a
trading range develops as longs are liquidated and new short
positions are acquired.
Right or wrong, this is how we see it, and we also see no reason
to "diddle in the middle." As a follow-up, we had been short from
1323.50, covering half the position at 1303, same day. The
remaining balance was covered next day at 1317.75 when price
rallied instead of declining.
Market NMT. [Needs More Time].