Saturday, August 25, 2007

Volume not confirming rebound

Well, the above title of the post says it all. A very basic tenet of technical analysis is that volume should confirm price action. Basically if the price action goes higher, the volume should expand instead of decline. A look at the chart of Dow Jones reveals though price action broke out of the crucial horizontal resistance of around 13247, the trading volume was light. Thus volume did not confirm price action for this breakout. As of now, i expect this rebound to be weak. Some possible scenario would be that the price action rebound off the resistive trendline and get supported at around 13247.
There may be some profits to be made for ppl who contra or short but my trading time frame is much longer than this so my current position is to stay out and observe the market further.

Dow Jones Industrial Average Chart:


On a side note, i am reminded that the more times the market fails to make a higher high or break a resistance, chances are that the market will be 'lethargic' and a very steep correction will happen. It is like if u bang the wall a few times and the same wall still dun come down, probably u will give up and come back another day. Maybe banging the wall is not a very good example but it's the only apt one i can think of as of now.

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