Thursday, September 17, 2009

Breakouts and Participation: When Market Moves Can Be Traded and Faded

We broke to a daily low in recent trade in ES; that low, however, was not confirmed by the NQ futures or by the XLP, XLV, and XLK sectors. Note also that volume did not expand significantly on the break.

When I'm working with traders as they are trading, we are looking not only at what is happening (price change), but also at the themes surrounding the action (intermarket behavior) and the degree of participation in the market moves. It is when participation expands on moves to new highs or lows--as we saw on strength yesterday--that those moves are most likely to show continuation.