Volume, Context and the S&P

BarroMetrics Views: Volume, Context, and the S&P

My approach to the markets is based on the works of Wyckoff (whose work Pete Steidlmayer took to a whole new level) and R N Elliot:

  1. The Wyckoff portion found expression in that body of my  work I call BarroMetrics,
  2. Pete’s work I allot to Market Profile. I am probably one of the few who  have followed his work from the traditional Market 30-minute Profiles, to what was originally called the Steidlmayer Distrubution. I stopped updating my Profile knowledge when Pete went to the CapFlow software.
  3. The R. N. Elliott material is given voice in the Ray Wave – the only objective wave theory I have seen.

Through it all, a number of principles hold true:

  • The structure of the market defines the price action and what we term as normal; and,
  • Volume and range provide vital clues to  answering the question: is the current action likely to continue or change.

Figure 1 shows a Normalized Volume of the Weekly S&P. The declining volume from March 16 had the market headed higher suggesting  a substantial down move would follow the end of the up move. The surge of volume on May 4 suggested a buying climax.

Figure 2 shows the daily Normalised Volume of the S&P. The large range day  on May 4 did not show commensurate volume. The price action in the mauve rectangle (May 6, 7 and 8 ) shows a topping pattern and topping volume. The price action on the up day of May 18 shows the Last Point Supply: a strong up day with almost no volume.

The reversal day May 20 (at the Primary Sell Zone) was preliminary confirmation of weakness; as a final confirmation, I want to see a bearish-conviction bar (close no higher than bottom third of a day’s range, open no lower than top third of day’s range on normal range and volume).

I set out the time and price zone components in my monthly videos.

It’s important to understand that had I seen the reversal signal without the context in which it appeared (zone, previous volume configuration etc), I probably would not have placed as much of an emphasis as I have. As it stands, I believe the probabilities favour the start of a correction that will take the S&P (basis cash) to 785 to 639. The preferred target is around 732. This assumes the S&P will not make new lows.

One of the burning questions  at the moment is whether the rally from 666 to 930 was the first leg of move that will:

  • see a return to the 12- Month Primary Sell Zone 1576 to 1461 or
  • whether it was merely a bear market rally – which means we’ll see lows below 666.

I’ll assess this tomorrow.

2009-05-25-spw-mkt-vol.jpg

FIGURE 1 Weekly Normalised Volume

2009-05-25-spd-mkt-vol.jpg

FIGURE 2 Daily Normalised Volume

3 thoughts on “Volume, Context and the S&P”

  1. No US Markets due to:

    Memorial Day is a United States federal holiday observed on the last Monday of May (May 25 in 2009). Formerly known as Decoration Day, it commemorates U.S. men and women who died while in the military service.

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