The Dow Jones entered negative territory, while the S&P 500 and NASDAQ posted their worst weeks since 2012, leading traders to warn of a correction.» Read More
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.
October hasn't been a very good month for Japan's Nikkei 225 Average. And for those invested in the Nikkei, October has been nothing short of apocalyptic. A quick run through of the stats is enough to send investors screaming for cover.
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.
The past week has been filled with one heart-stopping development after another. It reads somewhat like a Hollywood movie trailer ... banks fall, markets surge, bailouts abound.
This week has been one for the record books. Wall Street went into crisis mode when Lehman Brothers failed Sunday evening and declared bankruptcy. This pushed Merrill Lynch into the arms of Bank of America in a takeover that stunned investors.
The Federal Reserve bailout of the distressed Freddie Mac and Fannie Mae unleashed a Mac Attack on markets worldwide with around a 3 percent pop Monday. Can the pop turn into a lengthy rally, similar to the rally that occurred after the Bear Stearns bailout? Has this the potential to signal the end of the dreadful run of news and the beginning of a new sustainable uptrend? The short answer -- no. The charts suggests this Mac takeaway is more a burp than a trend changing experience.
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.