Wednesday’s Trading – 7/1/09

I haven’t been posting much because I’m working on an automated futures-trading program. It’s coming along nicely, and I will be spending a lot more time on it in July.

The bulls staged an impressive reversal Tuesday afternoon, and stole the month from the bears in the final seconds of play. In June, the bulls managed to rally the SPX by a whole 0.18 points.

The fact that the close for the month was a photo-finish may indicate that the forces of supply and demand are now in balance. It may also show that the bear army has become a credible threat to the Bovine Empire. The rally-leading XLF was down for the month, so the bulls already have a casualty.

H&S vs H&S

Everybody is talking about the head-and-shoulders pattern on the SPX. Danaric has a chart here, and The Fly has his opinion here. However, SPY has also formed a smaller, inverse head-and-shoulders recently (click chart to enlarge):


Notice that SPY bounced exactly where it had to bounce: the 91.27 low from June 26th. And it rallied into the close on strong volume. That is bullish action, so it’s important not to discount it. Especially since this pattern projects up to the June 11th peak.

Which H&S wins? It’s impossible to know that, but crucial to be mentally prepared for either outcome. The topping pattern is much larger and should carry more weight. But it is possible that Wednesday will be a consolidation day while the market awaits Thursday morning’s jobs report to decide the matter. The consensus is for another 350,000 jobs lost, and a jump in the unemployment rate to 9.6%.

Tuesday’s Trading – 6/30/09

The SPX closed at 919.14 at the end of May. So, it is up a whole 8 points for the month of June. And that’s all it will take to put June in the red today. Will the rally make it four months in a row, or will the streak die at three? The Q’s closed Monday poised to make a 9/36/15 cross-under, so I’m betting that the streak dies.

A Volume Projector

Here is why you hear me talking about volume so much: Last week, we had three range days, and two trend days. Monday trended down, and Thursday trended up. You could have spotted the trend days by looking at nothing but volume, which surged on both days.

The chart below shows SPY (15-minute bars) with a “volume projector” indicator. The blue bars are the cumulative volume to that point in the day. So, the blue bars always march upward as volume for each new bar is added to the total of all the previous bars. The red line is the same thing from the previous day. So, if the blue bars are above the red line, then that means volume is outpacing the volume of the previous day (click chart to enlarge):


So, if you looked at nothing but the lower panel of the chart, you could easily spot the trend days. And on Wednesday, you had a hint that the morning’s surge would not last because volume was very light compared to Tuesday morning’s volume.

A surge in volume tells you that traders are excited; that the herd is stampeding, and that it is usually a good idea to stampede with them – at least until the end of the day.

Note: If you use TradeStation, you can download the code here. If not, the algorithm isn’t very complicated.