[Editor's Note: World Of Wallstreet welcomes another bit of technical analysis education from DenaliGuide. Today we learn about the importance of volume and market breadth (fraction of stocks following a price movement) as confirmation of price trends.]
Well
Mr. Nasty [Editor's Note: see the NASI chart] didn’t like the bouncing Advances and Declines, unable to
approach, let alone [top] the two peaks, one the 2nd week of May, and then
the 2nd week of June. Roughly speaking, the S & P price level, is
approximately coincident with the Peaks in Mr. Nasty.
Insert [ MR. NASTY chart]
Typically
in price waves, often the 2nd wave is the the more extreme of the two,
relative to price. That means the 2nd peak is Higher in advances, and
Lower in declines. Again, the S & P 500 has lived up to this pattern.
Tips,
hints, clues. All work. BUT, to fail to consider the evidence right
before our eyes, will considerably hinder our attempts to SEE.
Looking
at the Wilshire [ $WLSH] you see a steep decline of the 200 DMA,and its
upward cross of the 50 DMA. Some would attempt to call this a “GOLDEN
CROSS”, but classically it is not so defined. CLASSICALLY, a Golden
Cross of the 50 DMA above a 200 DMA, is when the DMA is trending upward
and positively inclined.
The cross you see here [ Insert WLSH
chart] is that of a temporary BLIVIT CROSSING, like the Wandering
Figure 8’s we see when trend is NOT DEFINED. Further observed, since a
BULL Market creates an UPWARDS sloping 200 DMA, we define this as
something OTHER than a Bull Market.. Define that as you may, I call it dangerous ground, thin ice.
INVESTOPEDIA [ I like their stuff] says: Investopedia explains Golden Cross
As
long-term indicators carry more weight, the Golden Cross indicates a
bull market on the horizon and is reinforced by high trading volumes.
Additionally, the long-term moving average becomes the new support level in the rising market.
Look carefully at the trading volumes on any exchange during this time
period and generally you see a pattern of lower UP-Volume on this
rally, than on the rally that led to the previously established peak.
VOLUME DOES NOT SUPPORT THE “Continued Rally” Thesis. Without a
consistent pick-up in volume to bid for stocks to support the rally,
THEREfore, IMO, this is a Bear Market Rally, not supported by volume.
VOLUME speaks Volumes. Again, MY Opinion Only, given the financial
shenanigans we have witnessed in the last two years, I suggest that the
rally we see here, trying to suck in as much money as possible, as a
total rear guard action to hold the door open to the escape of
PREFERRED capital, before these market levels are breeched to the
downside.
Considering what has transpired in the last two years
and the continuing trend to the transfer of wealth throughout the
world, it would not surprise me that extreme measures are being taken
to combat the drain of funds out of established patterns. Therefore,
while it’s a bit edgy, in a public place, to suggest that certain
groups get preferential treatment, that is what I am saying. The rest
of us will have to fend for ourselves.
It is said that the Summation Index [ Mr. Nasty if you use the NASD] shows the flow of funds in and out of the markets , as a matter of observation, I agree.
Basically,
Price can lead you merry chase, but BREADTH and VOLUME will confirm
both price and each other. Failing the classic interaction of those
three, the premise is false. BREADTH & VOLUME, consistently, over
time, no matter how you slice them, are the most reliable confirming
indicators I have observed.. Given that, I will try to include some
charts for you to access in links, so you can check your conclusions
against the Volume and Breadth Indicators.
Far as I am concerned, Breadth and Volume are the Boots on the Ground and the Mud on the Tires, they are the real thing.
DenaliGuide
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