Saturday, August 28, 2010

Thursday-Friday /how did it happen ?

My intention in this blog is to analyze current market status and try to find short-term future trend, but I feel we can make an exception now.

What happened behind the curtains ?

I'll use R3K as it's volume is twice bigger than SPX 500 therefore gives cleaner and stronger signals easier to read and demonstrate.

Let's see what happened on 60-min resolution:

On 25-aug 13:30 you can see sbv histogram indicates selling exhaustion. Selling volume is declining, and buying volume is rising. At this moment, we dont know whether it's the end of the current, larger selling cycle, and not just a preparation of further falls. Next day there is an anomaly in figures: steady buying volume and declining, latter advancing selling power with constant price-fall effect, while AD sentiment remains above 45. This is the moment when an analyst rises his head.
This is the setup what market leaves for next day.

But what happened in the background? Let's drill down to 10-mins threads!

First of all, you can ask: how can it happen with a steady buy volume while selling volume is changing? Price is a combination of volume and individual tick prices in a given time frame. With extremely small switches between buys and sells compressing or decompressing your ticker-level volume injection you can push or pull money out without price effect for a short period. Surface remains steady but there are changes in the background. Sooner or later changes will manifest in prices.

Phase1 :Please observe time length and aggregated volume vs price change. Big pressure, small result. This is the reason that decision is made 1 day ago to change the trend. Risk is too high to find buyer for a good price, and puts are expensive for now. There is no efficient and safe money-making opportunity in this side of the market.
Phase2: Last put-buy preparation: small buy volume injection, big price effect upwards.
Phase3: After opening, large but short shoot of selling volume attacks and it changes up trend made (buyup continues overnight).
Huge selling volume injection (red bar), in the last 3 minutes smarts release puts, buying more calls. Retails happy to buy cheap puts, and sell their remaining calls.
Phase4: Imminent price effect, can not be hidden anymore. Extreme big buying volume. Buy as cheap as possible, other smarts react/join to the party. At 2.p.m. they sit back and relax, volumes easing. PPT jumps in and performs a destroying, last slap on short side. (unusual big buying 60 min volume intraday starting 2 hours before closing bell)

It's all I can say. If we'd drill down to 1-min, traces of these volume changes and price effects cleaner but hard to recognize for ones have no experience yet.

As you can see, all the move can be seen on volumes and charts. It's not a rocket science at all.

Have a great week-end!

ps.: I will write the usual week-end summary tomorrow or monday. Subject is SPX, some R3K and GOLD as usual. Please bear in mind my GOLD ideas.
We are in with 2 units of HUI, and soon we'll have one more unit.
We have ZERO unit in SPX, maybe we'll buy 1 unit for a few days.

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