Tuesday, February 23, 2010

Price Rarely Tells the Whole Story

The early afternoon tweet a little after 1 PM CT noted that the ES lows at that time (left blue arrow above) were not accompanied by lows in either the Russell 2000 or NASDAQ 100 Indexes. Most of the ES weakness was a function of weak prices among financial shares; other sectors did not confirm the ES lows.

In such situations, the downside is losing participation even as we reach price lows. When that happens, the seeming downside break often becomes a false breakout, trapping shorts. Note how that occurred this afternoon, with the two volume bulges (at right) as natural price targets to the upside.

It's a nice example of how it's important to monitor the context of price moves: price rarely tells the whole story.