Price and Volume Anomalies

Take a look at the Nasdaq Comp chart below.



Price and volume analysis would indicate that this market is going to fall back due to the breakout over the two swing points of the 9th and 17th of December. Price action was strong but the volume was more than 30% lower than the previous swing highs. These are marked by the two arrows.

My intent is not to predict Monday's price action but it is interesting to watch the result of this set-up. A contrarian may disagree for the simple reason that yesterday was the Friday after New Years Day and the volume tends to be lower anyway. Using that reasoning, and due to the fact that the bulls seem to want to give 2009 a kick in the pants, my guess would be a continuation of the upward trend. If there is still weak volume on Monday, a change in direction is more probable.

This is merely an exercise in price/ volume analysis and has no real bearing on my current position with the QLD. Guessing daily fluctuations is not our objective. Trend following is, and it will provide a more sound trading foundation. Of course that is only a half truth since a reversal, or a signal of a reversal, would make me more inclined to run a stop a little closer if the market gives the opportunity. Old (short term trading) habits are hard to break.

While on the subject, if yesterday's price did not break the swing high, and also had low volume, a continuation of the upward move would be probable as would low volume and a close below the swing points.

Volume is often overlooked but technical analysis would not be complete without it.