The Wide Range Breakout Day II

BarroMetrics Views: The Wide Range Breakout Day

The assumption behind a Wide Range Breakout Day (WRB) is this: current bullish conditions are so strong that  we don’t see the normal retest after a breakout.

In yesterday’s blog, The Wide Range Breakout Day, we saw that the breakout bar on Thursday met the definition of a WRB; but I also said that things were not as clear as I would like them to be. This blog examines why.

Figure 1 shows the Normalised Volume from the March lows. The volume within the red bands shows ‘normal volume’ when our sample runs from March 9 to date; the volume within the purple lines runs from the May high (Left Shoulder of the aborted H&S) to date. You see that  since May, ‘normal volume’ contracted.

The same story can be told about the range. Since 2000, the ‘normal range’ for the S&P has been 20 to 25 points, with a standard deviation range of 8 to 10 points. Since May, this has fallen to 16 to 17 points, with a standard deviation of 6 points. The lower standard deviation tells me that since May, the S&P has had consistently lower ranges than the historical norm.

The breakout on Thursday had a range of 26 points and the volume just made ‘normal’ if we use the March lows as our starting point. What I am saying is this: but for the severe contraction since May, Thursday’s bar would not have qualified as a WRB. Therefore we can expect a retest of the breakout zone.

Figure 2 shows a 30-minute chart. For reasons I go into in the Forum analysis (available if you register for the free BarroMetrics Weekly Video), I have opted for that pattern to be ‘3 Drives to a Top’.

Figure 1 shows that while the daily range dropped on Friday and yesterday, yesterday’s volume was greater than yesterday’s. Add this to the fact that yesterday the buyers were in control (MarketDelta Chart and the higher high, higher low and higher close) and we have all the earmarks for a 1-day reversal swing.

The intra-day patterns support a retest of the 5-day breakout zone 952 to 947 (basis Sept). But there is one more point to add:

Note that we have not accepted above the 18-day Maximum Extension. Basis the daily chart (Figure 3), this comes in at 981 (basis Sept); the 30-minute pattern has extended it to 983. That being the case, the possibility of an 18-day Upthrust is still alive and will be triggered on acceptance below 937. I rate this a lower probability than a successful retest of 952 to 947.

Tomorrow I draw some conclusions on pattern analysis using the WRB as an example.

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Figure 1 Normalised Volume

Charts through the courtesy of Market Volume

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Figure 2 30-Minute Chart

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Figure 3 ES 5-d and 18-d Swings

Charts through the courtesy of  Market-Analyst

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