Today, as we mentioned in yesterday’s Dow blog, we predicted the market to go down. During the morning, price got very close to our Stop which was 100 pts away from yesterday’s close. At the end of the day, the Dow closed 85 pts below yesterday’s close.
During the last 10 minutes of trading today, it was very interesting. Even though there was a lot of selling i.e. more declining stocks over advancing stocks throughout most of the day, there was a lot of buying during this time period. In fact, look at the chart below. It shows the declining volume vs the advancing volume for the NYSE. The green represents the declining volume and the purple represents the advancing volume. The timeframe shown in the chart is from 12pm to 4:15pm. Let’s look at the advancing volume(purple) and analyze it. From the afternoon to close, the bulls tried a couple of times to break a certain volume barrier (white line). However, they never could break it until 3:50pm today. After 3:50pm, the bulls made their last run and it was soo powerful that the bears could not stop them from breaking this resistance line. Therefore, there was a huge buying power push towards the last 10 minutes of the day.
Now, let’s look at one particular equity: PEIX (Ethanol stock). Look at the chart. The stock was drastically down most of the afternoon except for the last 10 minutes of the day. In the last 10 minutes, huge volume came in and caused it to move from $14.00 to $14.25. A .25 cent move in less then 5 minutes with huge volume.
Furthermore, tomorrow is Friday, the last working day before Memorial Day weekend. Most people are off tomorrow so they can have a long weekend. As a result, volume should be low. With volume being low, volatility will probably be very high. The question now is whether the low volume be buyers or sellers?
3 factors make me believe tomorrow will be a bull today. They are as follows:
- The buying power towards the last 10 minutes of the day.
- There has been a lot of people that have been on the “side line” waiting to get into the “bull run”. These people have been waiting for a pull back. Today, a minor pull back occurred. This may be enough to get these people to trade.
- Look at the VIX for the DJX for 1 month (see chart below). Notice, it is at the highest today for the entire month. There are high chances that the VIX needs to adjust so price should go higher for the VIX to go down. VIX and price TYPICALLY has an inverse relationship.
If you decide to trade the market going up today, make sure you exit by the end of today. Typically, the day after Memorial Day weekend, it is a bearish day. If you don’t exit, use a tight Stop in order to PRESERVE profits.
For EDUCATIONAL USE. Commodity Futures Trading Commission, Forex, Futures, Equity and options trading has large potential rewards, but also large potential risk and may not be suitable for everyone. You must be aware of the risks and be willing to accept them in order to invest in these markets. Do not trade with money you can not afford to lose. This is neither a solicitation nor an offer to Buy/Sell. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this document. The past performance of any trading system or methodology is not necessarily indicative of future results. All information provide d on the Blog is for educational purpose .