Three of these are now in a Compression Wedge meaning trading inside the range of the high volume KEY REVERSAL DAY except for one and that is the XAU, which made a new low and closing low on Friday.
A compression wedge looks like this
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Essentially, it is a sideways pattern inside the last day of high volume reversal candle, and since prices move concentrically into a tighter band, we build compression - and on any volume that sets up a break out or down ahead even on lighter volume.
The risk of holding overnight or on a weekend is high, because you have to be right... If you are short here you risk that the high volume high (i.e. known as THEE High) will be tested from Wednesday. If you are long you risk that the signals we are getting from some of the sub-indices like the SOX, XAU, RUT and the EUR$ for example on a price basis are telling us of potential weakness. Either way, they gap it on you and if you didn't guess right, you can be whipsawed.
Now, price isn't all I look at in my work as may be obvious. While I see the RUT, SOX, XAU and EUR$ going down here the volume pattern is not constructive for a continued decline as presented on Friday afternoon. Because on a volume basis, the bars are doing this:
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Meaning declining on SEQUENTIALLY LIGHTER VOLUME. And what does that set up? Yes, it sets up the BULLISH SPRING. Now as I have mentioned many, many times - a strongly TRENDING market does not need volume to move higher or lower. This market has not been able to go lower on light volume. Unless something has changed, I need to STRONGLY SUSPECT an operator ambush, meaning a whipsaw to the upside, probably starting with the EUR$.
The EUR$ pulled back on progressively lighter volume the last days of last week, and when I look for resistance, I see 1.345 on the radar or 2.5 pips up from here.
This doesn't mean we can't see another big gap down from here, it means the odds dropped for me and it was time to take my cash out and wait.
