Nov 15, 2011

A potential way of trading this market (exc options and such) — with low daily prob of big downside and high prob of small upside — is to fade volume. In this environment, investors are more likely to panic sell on a headline than to panic buy on lack of a headline. So high volume dump days (on news) may remain a good trading opportunity on the long side. This is usual.

More unusual, a better indicator for toppiness may be declining volume rather than more typical indicators like breadth or sentiment or chart action. Chart action is likely to whipsaw in this market. Breadth is too laggy for short-term trades. And sentiment is likely to be “headline-following” lagging/wrong.

If volume is indicative – either daily or some short-moving average of volume, then this current short-term upcycle may be over.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: