Monday, April 13, 2009

A Look at the Day's Price and Volume Dynamics

Here we see an interesting chart view of today's market action in the S&P 500 e-mini (ES) contract (60 minute bars), courtesy of Market Delta's software. In the top pane, we see volume at each price displayed in histogram fashion, alerting us to regions where large traders are transacting. In the bottom pane, we have the net volume transacted at offer vs. bid displayed as a histogram. When the bars are green, we have bullish sentiment (large traders lifting offers); the red bars show a dominance of bearish sentiment (large traders hitting bids).

Note the upside breakout above the morning trading range and how that was anticipated by a dominance of volume lifting offers. As noted in the intraday Twitter comments, this reflected the reverse of Thursday's trade, when the ES Delta (volume at offer minus volume at bid) was weak and NYSE TICK was strong. This morning, we had weak TICK readings, even as traders were lifting offers in ES. That was a great tell for subsequent ES strength once buyers returned to the broad market.

Observe also how we saw late significant selling pressure, as we came off the day's highs back toward Thursday's highs. That sets up some interesting dynamics for Tuesday's trade, as we will have to find fresh buyers to surmount the 860 region. We can see from the cumulative volume at price histogram at right that a failure to break that 860 level will target the value area bulge from the morning's range trade. That's but one illustration that good hypotheses regarding tomorrow's trade can be developed by observing the price and volume dynamics that evolve over the course of market action today.