A Shift In Momentum?
- Posted by TheArmoTrader
- on August 16th, 2011
After a massive sell-off the last 2 weeks, are we seeing a possible shift to upside momentum in the markets again? These last 3 trading days seem to say so. Ever since I started trading in 2008, volatile wide range markets doing big volume has meant that the bears have been in control. A non-volatile narrow range market doing anemic/average volume has meant that the bulls have been in control.
And in my opinion, today is no different. Everybody has been saying/tweeting that this bounce off the YTD low has been on lower/anemic volume. To you my friend, I suggest you reference a $SPY chart from 2007 to the present. Check the volume. Can you spot me anytime the upside volume has been greater than the downside? Has not happened. The upside moves have always been on average/low volume while the downside moves have been on above average/big volume. And in my opinion, that is what is taking place here.
$SPY- SPDR S&P 500 daily chart
As you can see in the chart above, I have noted some specific things.
- The RSI(14) has been improving, but it is not above 50 level yet. You cannot get very bullish until it does so. It would suggest a technical shift in momentum to the upside.
- The ATR as you can see has spiked dramatically over the past few weeks. But as you can see, it has started to pullback suggesting we might return to the typical grind-up/non-volatile market we are all used to.
- The $SPY closed over the 10day SMA for two days in a row now (As @TodayTrader Noted). I like using the 10sma as the “momentum moving average” because the time period is so short and typically indiates where the short term momentum is headed. Unless we sell-off tomorrow, the 10sma should start to slope up which would be bullish.
- As you can see, the volume pattern is returning to its normal self. Low volume grind up, huge volume sell-offs have been the pattern we have seen all year (and the past 3 years). So when someone says this bounce is on “low-volume”, I say bullish.
- Overall, some short term TA indicators are saying we might be seeing a shift of momentum to the upside. However, this does not mean that we do see it. Remember, price action trumps all!
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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