Thursday, July 16, 2009

When Range Trades Break to the Upside: What To Look For

Here we can see the upside breakout in ES; note on the Market Delta display how we had built volume in the price area between 926 and 929. As we broke higher, you can see within the bars that we expanded volume (and volume transacted at the offer price; bottom histogram) as the market traded above VWAP (and the volume bulge). That told us that large traders were accepting value at higher prices, transitioning us from a range trade to a breakout/trending one.

Note the tweet from this morning:

8:41 AM CT - Surprising strength: 32 stks up from open, 8 dn. Watching to see how we test overnight highs. Bk shortly

One real value to tracking a representative basket of stocks is that you can identify strength or weakness that may not be apparent from the index overall. A small group of stocks were weak, holding the index down this morning. By detecting the strength across the broader range of stocks, we could anticipate the later market strength.