Geopolitical tensions between Ukraine and Russia has accelerated the rally in Nymex oil prices that started in the week of January 18.» Read More
As seen in the past few weeks, a news event can trigger a selloff or a rally. In the case of a rally, a leading indication of this is the rise in volume which does not correspond with a rise in price.
This kind of volume increase suggests people are buying in anticipation of some kind of news that will affect the company. There may be rumors in the market. When the news is released the price and volume rise very quickly. This is a short-term trade opportunity. The trade is closed as soon as momentum declines. This may occur one or two days after the news announcement.
In the final installment of a four-part special, looking at the price/volume dynamic, we chart the game of Pass the Parcel. The aim of this game is not to be left holding the stock when the rumor is either confirmed or dismissed in the market.
Volume is the fuel that drives the market. Charts yield clues when volume is out of character. High turnover on a lower close indicates selling pressure -- people want to get out and no one is eager to buy, so the price falls. High volume on a stronger close indicates buying pressure -- people want to get in, but nobody is willing to sell, so buyers must bid higher.
In the third installment of a four-part special that looks into the price/volume dynamic, Charting Asia delves into volume activity reflecting a fast moving rally that, if traded correctly, can deliver good short-term profits for low risk before the rally retreats or moves sideways.
Catch That Rally!
Rally behavior is important as it's often the beginning of a change in the trend from down to up. Unfortunately many people think every rally is the beginning of a new uptrend.
A rally provides a five to ten day trading opportunity and must be managed with a tight stop loss. The way volume increases with price, separates a genuine rally from a skilful example of price manipulation in a 'pump and dump ' scheme. It also tells the trader when there's a 'dead cat' bounce. These are the rules.
Market volume is very significant in short-term trading. The relationship between price and volume provides a guide to the type of buying or selling activity that is developing. Charting Asia presents the second installment of a four-part special that looks into the price/volume dynamic.
In the last column, we looked at the trading game of Pump & Dump . This edition looks at the trading game of Hide and Seek.
Hide and Seek is when an investor tries to build a large position in a stock without causing the price to rise. Basically, this kind of volume activity is the genuine accumulation of a stock for long-term holdings.
Market volume is very significant in short-term trading. The relationship between price and volume provides a guide to the type of buying or selling activity that is developing. Over the next two weeks, Charting Asia presents a four-part special that looks into the price/volume dynamic.
We kick off by looking at the games traders play.
Traders and investors are constantly playing games in the market. Market volume is a record of such activities. Careful analysis of the relationship between price and volume tells us which game is in play. You keep score by calculating the difference between your entry price and your exit price. What games are out there?
Pump & Dump: This is where desperate individuals play bully with a small stock and use small volume trades to push up price. This price rise is irresistible to other traders and they buy in the hope the price rise will continue. They are tagged when the price manipulator pulls out of the market.
Hide and Seek: This is when an investor tries to build a large position in a stock without causing the price to rise.
Catch that Rally: This is when investors capture a short burst of activity in a fast moving rally that, if traded correctly, can deliver good short-term profits for low risk before the rally retreats or moves sideways.
Pass the Parcel: The game starts with volume based on rumor. The aim of this game is not to be left holding the stock when the rumor is either confirmed or dismissed in the market.
This column details the share manipulation game of Pump & Dump. Here, the manipulator buys a significant volume of shares. Others see the price movement and join the rally. The manipulator then sells to these new buyers and captures a quick profit. The price is 'pumped up' and then the shares are 'dumped' or sold to unsuspecting buyers.
The key question facing markets these days is the difference between recession and depression. A recession is an economic slowdown that may last for 6 to 18 months. A depression is an economic pullback that may last from two to four years. We'd rather not have a recession at all but if we have to choose one or the other, I'd rather be recessed than depressed!
In either case, the market moves in anticipation of the event. The market decline develops before the fundamental signs of a recession or depression become evident. The market leads the confirmation of conditions.
The SARS plague was an Asian nightmare that threatened the world. Events in Asia were closely watched to assess their impact on the rest of the world. Its spread, and eventual containment, was measured by thermal imaging devices in airports.
This year brings SARS 2 – Severe American Recession Syndrome. Its heartbeat monitors are the Dow Jones Industrial Average and the S&P 500. We use the monthly S&P 500 chart to measure the temperature and track the recovery.
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The allure of gold has never been stronger in today's volatile markets. The precious metal has been glittering over the last few weeks following massive one-thousand-point swings in the stock market, pushing it through $900 an ounce from the mid-$700 level in September. Some market watchers are even calling for a spike to $2,000 in the next six months. It's no wonder the shiny stuff is sometimes called the 'world's crisis commodity'.
Are we there yet? This is the key question and it relates to finding the bottom of the market.