Oil was no exception today and joined the sea of red in most markets, but for volume traders today was an interesting one when we consider the volume on the daily chart and compare this to other days. And what strikes you instantly is the size of the volume bar which could best be described as below average.
Scanning across the chart confirms this view and whilst it is not the smallest volume, it’s only exceeded by a couple of days in January. So why is the volume so low on such a big price move which closed as a wide spread down candle? And the answer is simple. Today’s price action has been moving in a similar range to that of the gapped down day, yet the volume today is a fraction of the extreme volume and therefore confirming the selling pressure has all but been absorbed in the market. In other words, when a market moves back into a price region which has previously witnessed high volume but is now seeing low volume, the conclusion is straightforward. The heavy selling has been absorbed in the consequent congestion and therefore unlikely to continue falling further. Far more likely now, is oil will congest further in this region before the buyers move in and a new campaign begins with the development of a trend away from this region and back into the $30 + per barrel region. This may take a few days or weeks, but rest assured the recent heavy selling is finally coming to an end.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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