A lot of people have been trying to short the market. Granted that there are technical basis for their observation. Their problem isn’t that their analysis isn’t good. It is just not supported by the proper time frames and by the amount of volume. This situation makes it seem like the market is being manipulated or is in major constipation. Lets talk about manipulation first. I can’t say if it is being done so or not. Bottom line for me is that whether or not it is being manipulated, as long as they can’t hide their transactions, I’m good. The second thing that must be noted is that, since the low achieved in 2009, the market has done one thing really well. That is, pop up on low volume. There are a few things that you can attribute to the low volume. One, people were wiped out of the game. And secondly, many hedge funders, and there were many back then, who would have taken every opportunity to short, were wiped out also or consumed by larger institutions.
There are a lot of people who have said fundamentals are out the window and technical are not working in this market. Fundamentally you shouldn’t be investing with fundamentals if you are short term. Technically everything has been technically perfect.
What is driving the market higher is really longer term trend. People don’t understand that, a huge accumulation process discussed in the last issue is largely responsible for us regaining the April high and surpassing it. Even the weekly closed above the April high. The other major component to the drive up? Low volume.
The bears are not participating in the market. Take a look at the volume that has been in play all year. Is this the volume you had in 2007 or 2008? No. Is this the volume you had pre-2007? No. Not even hitting 2million by 10am est. So what has been happening. Some people have wrongly identified distribution in the 4hr time frames. Yes progressively there is distribution. However, in the 4hr realm, it can take weeks for it to play out. And it if happens, it will be short lived if the volume does not participate. And so where does the trend go to follow. Longer term trend, back to the daily.
This 4hr shows distribuition and trend and how momentum works.
How do you determine what volume is doing?
People understand some technicals. But when you are trading for the short term, you really have to understand momentum. A lot of people don’t know how to see momentum A lot of people can’t use their oscillators or even identify the patterns that turn momentum in their candlestick charts. It was funny last Thursday and Friday, people were really adamant about their shorts. Whenever I saw the momentum turn against them, I would ask if it would be okay if I (moo’d) go long. O no you can’t this will go down more. No it isn’t, momentum is turning. Not only did it turn on them after the open, it also setup a turn by mid-afternoon in the intra-day intermediate time frame of the 1600tk and 5min.
Trend
Some people don’t understand what trend is. And why it is crucial that trend is not deviated. If the basic principle of trend is loosey goosey, then trend is not a technical consideration. There is no such thing as trend. But trend happens. There was a generalization told in chat the other day, that when volume is low, the market will pop up. Yes but only if the higher term trend is up. One of the first things I learned with stochastics, when volume drops, is that price will follow the higher time frames trend. Generally people equate the fast line of the sto to the price action. But it doesn’t always happen like that. Sometimes the price will not follow that line’s direction, but a higher time frame’s direction. Volume dropped during those times.
Why will the dropping of volume follow the higher time frame trend? Because it is the trend! The lower time frame is subject to that trend.
If you claim to be a technical trader, then uphold the principles that technical trading requires you to understand. Some people claim to be technical traders, but utilize funnymentals to explain why the market moved. You can’t be divided in your thinking process. If your understanding of technicals isn’t sufficient, that you change your technical analysis for different situations, then you do not have a solid grasp of technicals.