22 replies to this topic

[traderpaul]

Regarding SPY and Volumes... Derivatives are known to give a false picture in volume analysis. You should verify your observations against the underlying index. If there is divergence, the picture provided by the underlying index rules... reason.. overall volume is greater...



The reason for this is dynamic hedging.

Why are they hedging if they think the market will be higher?

[SemiBizz]

And here is the underlying index...Still Bullish... can see there was a high made on higher volume vs the 2/27 spike and a pullback off the July spike on lighter volume and a pattern of higher high on higher volume has begun

[SemiBizz]

Why are they hedging if they think the market will be higher?

I will let you argue the fundamentals of WHY... I really don't care why... I just analyze the data... Why can get you into a lot of trouble.

Edited by SemiBizz, 22 July 2007 - 11:54 AM.

[OEXCHAOS]

NAV, Take out all the oscillators and moving averages and trend lines and substitute SPY for ES so that you can see the volume.....
Now, imagine that is the chart of a UFO flying object.....This UFO was flying and gaining altitude from March to June.....She was stalling since June, burning a lot of fuel (volume) and going nowhere, Ok, OK she made a slight new high.....Now, you are so sure that the next step is up?.....March to June looks like distribution to me.....

How many times has the market traded markedly higher after months of "distribution"? Enough that it makes sense to trade for them, until things really turn over. So far, we've got breadth sells (SOME), but we can't even take out the 21-day.

In that situation, you're a fool if you trade short-term NOT to take your hourly buys. It's just that simple--there's still a higher bias AND the cost of being wrong is very small.

Now, I'm more Bearish than NAV is, but I'm also very careful in here. I want to stay open to the long side, if possible. The volume has me thinking more short, but I'm actually eying a cross over by the daily MACD to buy--which NAV might want to consider.

The divergences and the under-performance by the RUT tell me that there's real risk here now, during the weaker part of the seasonal cycles, but I don't want to wear myself out too soon by being too Bearish.

Mark

[OEXCHAOS]

And here is the underlying index...Still Bullish... can see there was a high made on higher volume vs the 2/27 spike and a pullback off the July spike on lighter volume and a pattern of higher high on higher volume has begun

Semi, I say this knowing that you're the expert. I just don't SEE what you're saying. To my eye, I'm NOT seeing higher up volume than the 2/27 spike at all.

The pattern I'm BEGINNING to see is lower lows on higher volume after a short-term trend of higher volume on higher prices.

Now, as I look at the ES, I'm seeing BIG volume on the downside coming in. No upside volume even close. The disturbing thing is that the low at 1505ish was on mighty big volume and we didn't seen a rally with similarly large volume after the test. I would be thinking higher had we seen volume like last March's rally off the lows. That suggested serious buying that was for real.

The recent volume suggest serious selling to me that's for real. With Op-Ex, everything is possibly hooey, but I'm not ignoring it, anyway. In my experience, when the volume come in, I'd do best to trade in the direction of it, or at least not in opposition to it.

Mark

[SemiBizz]

Could you be wearing the brown-tinted sunglasses? 6/22 4.284B vs 2/27 4.085B higher high, higher volume. In the local zone, after the pullback off the 6/22 volume spike, volume declined on the pullback all the way to 7/2, then a pattern of higher highs on higher volume started again... With respect to Wednesday vs. Friday's action... A higher high was made, as well as a lower low on bigger volume... we close back inside the Wednesday candle... and that says to me the door is open to move higher. Now as we already know from our earlier experience, the action of the cash index takes precedence in the long term picture over the short term ES. First of all the data on the cash index is more robust, as there is no life cycle as is the case with ES, secondly - the volume on the SPX is by a huge order of magnitude is more robust than the relatively small number of contracts traded on the ES.... Again, we're down to time frames. If your timeframe is tonight's and tomorrow's ES trading that is one thing. I don't trade them myself. If you are looking for overall market direction, you go with cash SPX.

[thespookyone]

Nav-Simple always works for me, especially lately. So, when I look at a perfect backtest of a breakout in several indexes-I need only think=MOO. The market has gone up on incredibly poor internals, and can continue to do so. The only thing bothering me about the bull case is the way the index PC smacked up Friday, but even that isn't sending the usual bear signal to me, as the Equity PC went more bearish at the same time.

[NAV]

NAV, Take out all the oscillators and moving averages and trend lines and subsitute SPY for ES so that you can see the volume.....
Now, imagine that is the chart of a UFO flying object.....This UFO was flying and gaining altitide from March to June.....She was stalling since June, burning a lot of fuel (volume) and going nowhere, Ok, OK she made a slight new high.....Now, you are so sure that the next step is up?.....March to June looks like distribution to me.....

Now since you view March to June as distributive, i gather you have been bearish all the way since then. I really don't care whether a market is in accumulation or distribution, cuz i don't have to move billions of dollars and for my timeframe, it's irrelevant. I just have the right indicators to follow the price.

Edited by NAV, 22 July 2007 - 01:07 PM.

[arbman]

NAV, you are right about an upside retest at least on Monday. I expect a consolidation range with the lows around the end of July and a retest of the highs into August and then the real correction should probably happen into fall. The financials sold on volume, even if they bottomed here for the short term, they will retest those lows in about 2 wks. I do not think the outlook for the financials is improving here for the long term for the fall. I think we should continue to see the nasdaq leadership... I should buy a (mild) gap down here for tomorrow and then get back to the short side at whatever highs the indices make, I hope... - kisa

Edited by kisacik, 22 July 2007 - 01:28 PM.

[OEXCHAOS]

Could you be wearing the brown-tinted sunglasses?

6/22 4.284B vs 2/27 4.085B higher high, higher volume.

Ah, I see, but that was a DOWN stick...if I'm reading your chart right. To me, that's a "look out!" type of thing. Maybe I'm wrong. There may well be a bullish nuance that I don't yet get. And true, the close is important and we did not take out the low... Then again, note that the BIG volume in the ES was June 12, exceeded only by the March upstick. I take that to mean that chances are, we're still in an Bull market, btw.

In the local zone, after the pullback off the 6/22 volume spike, volume declined on the pullback all the way to 7/2, then a pattern of higher highs on higher volume started again...

With respect to Wednesday vs. Friday's action... A higher high was made, as well as a lower low on bigger volume... we close back inside the Wednesday candle... and that says to me the door is open to move higher.

Now as we already know from our earlier experience, the action of the cash index takes precedence in the long term picture over the short term ES. First of all the data on the cash index is more robust, as there is no life cycle as is the case with ES, secondly - the volume on the SPX is by a huge order of magnitude is more robust than the relatively small number of contracts traded on the ES....

Again, we're down to time frames. If your time frame is tonight's and tomorrow's ES trading that is one thing. I don't trade them myself. If you are looking for overall market direction, you go with cash SPX.

I gotta suggest that you may be making an error in downplaying the ES. You aren't considering the leverage that they have. By my off-the-cuff calculations, you move the same amount of money in the ES as you do the SPX. In order to get a $100 gain per point in the SPX, you have to invest $150,000 In order to get a $100 gain per point in the ES, you have to invest $7,000. Sure, the SPX volume is 10 times at of the ES, but the leverage is 20 times in the emini.

REAL money trades in the ES. Technically it's a derivative, but in reality, it leads. That's why they call them FUTURES.

As I've said, the evidence thus far for me says that at least on the time frames that I'm watching, volume is absolutely valid on the ES. Maybe MORE So than the SPX. In any case, it's easier for me to see. More exagerrated.

Mark