Many of you will have come across the wonderful poem by Stevie Smith, ‘not waving but drowning’, and for US equity markets this has been the sentiment expressed by many market analysts who’ve been suggested the long congestion period of the last 2 years is climatic selling and therefore the precursor to long term bear market. This has not been my view and is explained in my various posts. For me, it is straightforward and self evident once we consider the price action and volume on the weekly charts for the indices.
Volume price analysis 101 states that in a selling climax, we should expect to see multiple candles with deep upper wicks as the market makers drive a weak market higher and sell to eager buyers keen not to miss out, before sellers knock the price action lower. It is this whipsaw price action which creates this type of climactic price action only reverses into a bearish trend lower, once the market makers have tested and the buying pressure has been absorbed. Then and only then will the term trend lower begin.
To date, there has been little such price action but in fact the polar opposite. Each time selling hits the market, it has been absorbed and characterised with deep wicked candles on high volume. And therefore not a selling climax. I have used the NQ emini for this example but the three prime indices all exhibit the same broad pattern of price action.
In the past two weeks, we have seen a classic breakaway on good volume and a move firmly away from the volume point of control on the weekly chart at 7600, as denoted by the purple dashed line. Last week’s price action provided further evidence of the bullish sentiment now in place with the index moving firmly through the resistance below 8,000, as denoted with the blue dashed line of the accumulation and distribution indicator which delivers these price based level according to their strength. In other words, the thicker the line the more sustained are these areas which are calculated and delivered automatically by the indicator. In addition, the volume histogram of the volume point of control to the right of the chart is falling away as the market climbs, and with a low volume node now ahead, the market looks set for further gains, with the index pushing firmly ahead on Globex at the start of another trading week.
NB : You can find a more detailed explanation of a ‘selling climax’ in my book : ‘A Complete Guide to Volume Price Analysis’ which is available from Amazon.
By Anna Coulling
Charts from NinjaTrader
Volume point of control indicator – click for more details here
Accumulation and distribution indicator – click for more details here
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