Dominant Price Volume Relationships

We haven't covered these in a while and it's a useful tool to help with your analysis. Volume tends to be one of the most under utilized indicators out there, it has lost some of its usefulness in a heavily manipulated market, but there are still areas where it is very useful, one is Dominant Price/Volume Relationships.

There are 4 Price/Volume relationships

Price Up and Volume Up, Price Up and Volume Down, Price Down and Volume Up and Price Down and Volume Down.

While each has a little different meaning depending on where it falls within a price trend, the basic concept is that Price Up and Volume Down is a bearish relationship if it is dominant, it shows buyers aren't aggressive.

Price Down/Volume Down tends to have the least meaning and it is the hallmark of a bear market.

Price Up / Volume Up is the most bullish relationship, this is often how a new move starts.

Today we have a dominant relationship, it's not everyday that we have a dominant relationship and only dominant relationships are useful.

Looking at several of the major averages, you'll see today's Dominant P/V relationship, I run a scan that tells me what the relationship is among the component stocks for each average.

Dow-30 - As you can see, the dominant relationship is Price Down and Volume Up. A Dominant Relationship is usually 2 times more than the second largest relationship. A relationship that is 50% of the component stocks in the average, that is also a dominant relationship, we don't always have dominant relationships and we see the same dominant relationship in all of the averages even less. With 22 of 30 Dow stocks closing down on heavier volume, we have a very dominant relationship. This has nothing to do with the Dow's volume itself, but rather the component stocks.

NASDAQ 100

All NYSE Stocks in the System

Russell 2000

Russell 3000

S&P-500

You may have noticed in all of the averages, the dominant theme is Price Down/Volume Up.

When an average first breaks support or an important level, this relationship is common as a lot of stops and orders are filled. However when the market has moved down several days/week this relationship is often seen as a mini-capitulation event and often leads to a reversal as the sellers have hit a short term moment of capitulation.

In today's case, this is a bullish indication for the market tomorrow. This of course is only one of many indications we can look at, but it is often a very useful tool.

Interesting Change in AAPL

I've made no secret of my disappointment in AAPL, I said well over a month ago that there were too many hedge funds all looking to exit the same small door, so I guess I shouldn't be surprised AAPL has performed or rather not performed the way it has. However at the same time, the changes in the market that suggest an upside shakeout of some magnitude "should" include AAPL and until very recently, AAPL just hasn't been giving us any signals to point to.

However that change I mentioned probably a bit over a week ago has really made a significant stride. Today I also showed you quit a few charts that have seen big improvement this week (Monday and Tuesday).

Take a look at AAPL as of 3 days ago...

 This 30 min relative positive divergence in AAPL would have actually started at the 22nd of October, the point where the arrow starts at October 9th is not a divergence, it's just where the relative comparison starts.

I'd say this divergence is worth watching, it's not one that would really move me to action or get me too excited. If we move forward a simple 2 days to the present, look at the difference and for newer members let me just say that a 30 min chart is a long timeframe that doesn't usually move that quick unless there's some heavy underlying action. Remember, the longer the timeframe, the more significant the divergence.

In 2 days AAPL's 30 min chart is leading positive and not only that, but it's also pushing toward a new local high.

This is a huge change of character for AAPL in 2 simple days.

ZNGA Update

At the end of October we started to look at ZNGA and establish some interesting charts, in many ways ZNGA is looking like it's getting ready to surprise some people and make a run.

 Here's the daily chart just to get your bearings, the original post about ZNGA linked above, mentioned ZNGA wasn't quite ready back then as a long, but it needed to stay on the radar.

 When we have a 60 min chart with a positive divergence like this, something in the underlying trade is going on, something bullish, but looking at price alone, Wall Street does a great job at not letting on that they are active in the stock.


 Now that we have the longer term, high probability chart established, we look at a 15 min chart, a good timeframe to look for entries, as ZNGA pulled back from the mid-October highs, it's clear there's a solid positive divergence starting in early November.

 And here on a short timeframe, 2 mins, we have the "Quiet Kids" with a couple of days of ZNGA trading in a THREE CENT RANGE! Remember what happened with AMD today!

People miss thee flat areas of trade, they ignore them as being dead space, that is rarely the case. These flat spaces are fertile ground to look for institutional activity; it simply isn't the nature of a stock to act this way unless there's some force working on it-that's your clue.

The only thing I'm a little concerned with is this support area, ZNGA has actually traded just below it, but if there are enough stops/orders there to make it worthwhile, they'll usually hit them before letting it run.

In any case, I'm liking ZNGA more and more and I think it's closer than ever to a worthwhile move. 

UNG Update

It was just yesterday in this UNG update I warned about trying to get too fancy with UNG,

 "This is a long term long position", it's not a trading position.

If you spend too much time trying to thread the needle here you'll be left behind. 

 I think this is as good an area as any to start or add to a long in UNG, just remember it's a base, it's volatile, it's longer term."

Today UNG proved me right with a decent +4.76% gain, but for those who have been following UNG with me for a while, you may have a 25-40% profit in a stock that really hasn't even broken out yet as far as I'm concerned.

All of the charts that really matter as far as UNG goes were in yesterday's update and not much has changed today other than the price gain. We may see some gap filling as that has been the trend for well over a year in just about every asset, we do have the EIA Natural Gas Report Thursday morning. To me, this looks like UNG is done with the last pullback and should be starting another leg up.

UNG daily chart with a nice gap up off what looked like a great buy area yesterday.

We are still looking for a strong breakout with heavy volume, that should mark the start of the Stage 2 mark-up, that's when UNG will really put in some gains.

Quite often we look for the very best entries and exits, but as I said yesterday, this is one that you don't need to get too fancy with.

AMD Follow Up

I wanted to give you warning so you could decide what you might want to do with AMD, I'm not sure how it will finish out the day, but I saw it up over 16% and probably a bit more than that.

I intend on keeping AMD open for now.

Here's a look back from several days ago so you can see what AMD looked like before it just popped. once it pops the scaling on the divergences gets a little screwy, so here's what we saw in AMD and are seeing in many places.

There were some tell-tale signs in AMD you should be aware of...

I often say, "Quiet markets are dangerous markets" or "A Quiet market is like a quiet kid, there's usually something brewing". The worst part is they catch people off guard.

 AMD's daily range is very flat, this is where we almost always see some divergence, I don't think it's coincidence, I thin it's the market maker/specialist working the order. When I see these, I pay attention.

 The head fake move in AMD, it doesn't look like much, but on a percentage basis it counted.

 Before I even looked at a 3C chart, when I saw this 1 cent range, I knew there would be a large positive divergence in the fast timeframes just before the breakout, I believe it's market makers/specialist stocking up for the move they know is coming as they just filled the institutional order.

 I'd like to see a close above the range, hopefully with heavy volume or a follow through day tomorrow.

 As expected, the positive divergence in such a flat range, these are the footsteps of smart money.

The 10 min chart during the larger range.

Good luck to the longs, I hope you did well or do well.

Keep an eye on AMD

This is one of our longs, you may or may not want to take some profit in this depending on what it does, but at least keep an eye on it.

Market Update

Again, another intraday emotionally moving moment brought to you by the market, but it still doesn't change what I showed you earlier today and not too long ago.

Even a mid term average on a 15 min chart is not moved down on that last move, it's still bending upward.

As for the divergences in the averages, most were in the 1 min or 2 min timeframe, the bigger signal remains in the longer timeframes moving up and seeing more recent momentum over these last 2 days.

There aren't any interesting short term divergences intraday so I wouldn't expect any big surprises intraday, but that's not where the story is, it's on the longer term charts, the ones that carry much more significance.

I have some advice I give to people just learning to use 3C, "When you are in doubt, look to the longer timeframes", they have less noise, more trend and they are the most important as far as what the picture actually is beyond intraday jiggles that are technically meaningless, but emotionally trying.

I have a doctors appointment at 4:15 so I'll have to leave by 4, but I'll post when I get back and show you anything interesting, especially as it may relate to the close.

Financials and Confirmation

We'll be looking at XLF, the Financial sector as well as FAZ (3x leveraged short Financials ) and FAS (3x leveraged long Financials).

These aren't even managed by the same company (except FAS/FAZ) and they all have different trading volume (one of the things used in 3C calculations).

Basically what I'm saying is there's no way they would have such similar signals if there wasn't similar underlying trade in play.

 FAZ 30 min shows what looks to be a couple of upside head fake moves with a longer term negative divergence, remember this is the Financial Bear ETF. At the area in yellow around the dates, this would be the same area as the suspected head fake in the market averages where we have leading positive divergences, this is a leading negative.

 FAS-Financial long ETF with the same cycle and the same dates in yellow with a leading positive divergence

 Amazingly, the non-leveraged XLF looks almost exactly alike, they should in price, but the volume, block sizes, underlying trade should look very different as they trade completely different unless there was a unifying theme in the underlying trade. Just to make this example even more potent, take a look at a totally disconnected asset, a market average of the Tech heavy QQQ below.

Although I didn't circle the dates, the signals are nearly exactly the same. What are the chances of that?

This is how we build confirmation and this is the reason for the name "3C", from one of my favorite bits of market advice, "Compare, compare, compare"

Market Update

There are intraday negative divergences in most of the averages right now which doesn't come as much of a surprise. Building off the earlier example, don't ask me why, but I used XLE as it was what I was looking at, here's what we have...

 XLE/Energy 1 min intraday negative divergence...


 And as I was pointing out earlier, the moving average cuts through the volatility and gives you a clearer picture of what's happening, remembering that nothing moves in a straight line, there's too much money to be made shaking the market up and down, however the moving average is now turning up, an intraday pullback shouldn't change that much.

 The recent momentum in Energy and other assets over the last 2 days...

The bigger picture of the entire cycle.

And as I'm looking at different charts I'm seeing some make some very large moves today, one I recall off the top of my head is AAPL on a 30 min chart, which is quite a long timeframe for AAPL the way it has been acting recently.

Just the fact the 30 min AAPL is leading is impressive, but the area in the box is just from today, that's impressive.

Financials also had some really interesting charts among many others.

GOOG Reminder

Just a reminder, the November 8th GOOG Calls are in the money  , they were December $650 calls and based on this analysis (in part).

The idea behind GOOG is basically the same as the general theme, shakeout move and then hopefully we get enough upside to add or initiate to core short positions. GOOG just happens to be a very obvious bearish technical price pattern that is widely watched, which makes a head fake move / shakeout of GOOG even more probable. So the calls are for the shakeout move, but some of us already have profitable GOOG equity shorts in place as well that we'd like to add to.

I don't see anything that would change the analysis on GOOG, even if you don't want to play the long side as it is more speculative, being patient and waiting for the short set up to materialize should be a very well worthwhile trade.

BIDU Update

It's getting hard to not take some action on BIDU.

 1 min continues to improve, rarely do we see "V" reversals, although if this is a head fake move and the timing is right, this might look more like a sharp "U".

 The trend of the 2 min chart I think can't be discounted and ignored because of 1 day that may very well be a shakeout move.

 Intraday the 3 min chart is improving also.

 The 3 min chart's trend also leading positive

 5 min chart improving intraday-that's migration of the divergence through timeframes.

 5 min chart's trend

15 min chart, looking at the price trend we have an uninterrupted downtrend thanks to today, which may very well be the head fake move BIDU hasn't seen yet, however following confirmation of 3C at the green arrow with lower lows in price and 3C, that all stopped recently. Again, a hard chart to ignore.

I think if action is going to be taken on BIDU, it needs to be soon to take advantage of the discount from today's move. I still like it, I'd still hold it and probably add on this potential opportunity.

Leading Indicators

I'm a bit biased, but I've had a lot of years of experience and my favorite leading indicator is 3C, it's also one that no one else sees which is an advantage. Is it a perfect indicator? No. Even if it was a perfect indicator, do we have a perfectly reliable market? No, MCP is a recent example of an imperfect market no matter what smart money may be doing.

Over the last year or so we've developed more to help us with better analytical confirmation.

I'm not THRILLED with the leading indicators, I find them to be about split down the middle, but the ones that are leading are truly leading and the ones that aren't are in line with the market, they are not giving the opposite leading negative signal, so a slight advantage to the leading indicators that are giving signals.

I'm most disappointed that High Yield Corporate and HY Junk Credit aren't leading, but High Yield Credit itself is.

HY Credit vs the SPX (green)-these are large markets (Credit) and HY is what is used to express a bullish opinion, this divergence and the size of it are interesting and can't be ignored.

I'm also disappointed that Yields are not leading like they were when this cyscle started, however, looking at the flight to safety Treasuries (TLT), there are interesting divergences there that may take up that slack.

 15 min looks like Treasuries have been being sold in to price strength, the same way we have 15 min positive divergences that suggest the averages are being bought in to price weakness, profits from this asset would go in to accumulating equities.

 The recent leading negative divergence on a 5 min chart over the last few days as we have seen some strong upside momentum in the same period in risk assets.

The 1 min trend needs no explanation.

As for FCT which is a better longer term indicator, but has shown some utility on a shorter term basis...

The last 2 days also have shown improvement, I wouldn't make a case based on this alone, but considering the signal over the last2 days, I think it is relevant.

 Without a doubt, one o my favorites is the $AUD, this can tell us what hedge funds are doing as far as how they get cash together to finance positions, while we can make different cases for why the $AUD is positively divergence from the SPX, there are few cases that can be made that can call it anything near negative, in fact if it is for the reasons I suspect, it would be quite bullish.

 We don't look at the Yen that much, but here you can see its negative divergence sent the SPX lower and recently, it has been in a positive divergence.

Here's a closer look...

AAPL Interesting

Lets just pretend that the market acts like some of the books we might have read 10 or 15 years ago, "Learn to Earn", Motley Fools, etc. 

When you consider the news out of AAPL in the last day or so, they are looking at IP5(S) already because as I even understood clearly when the IP5 was released, AAPL went from revolution to evolution; they went from leading to looking over their competitors shoulders to get ideas.

Then with the news yesterday that Samsung has upped the price of components needed in the Iphone and Ipad by  margin of +20%, one would think AAPL would be down pretty hard today, but they're not, they are up.

In any case, AAPL has been a disappointment for a while, it has not shown the underlying 3C strength that I hoped would develop and lead the market on a shakeout/clean-out of the shorts. I am glad that as AAPL fell, it wasn't giving positive divergences otherwise I'd be a little upset with 3C's indications.

However a few weeks ago I cautiously noted that something was changing in AAPL's underlying action, there were signs of a change, it wasn't huge, it wasn't a buy, but it was a change.

Now we've had some more time and some divergences have developed which is important because just like the 3 Pillars (Tech, Energy and Financials), I also think the market needs AAPL to at least not act as an anchor before the market can do what we've been waiting for patiently.

Here are the charts with some interesting finds...

 The 1 min opened to a positive divergence this morning, we do have a negative intraday divergence, but that's not really of too much interest to me-the opening indication is especially given the pre-market positive divergences in the futures that the market responded to so well thus far today.

 10 min AAPL leading positive, if this was the extent of the positive divergence, it wouldn't be surprising given some of the other timeframes and assets, but it's not.

 15 min leading positive-this is a more serious timeframe, it is kind of the line in the sand between a small move and something with more potential.

 However a 30 min leading positive divergence and the last 3 days momentum? Wow. In the past, wherever a divergence first starts, I've noticed price tends to exceed that level on the reversal, so that would be around $590-$630 and as I said, it tends to exceed those levels and with a 30 min positive... well who knows? It is a surprise.

Just for context of the 30 min chart and the change of character...

Here's the longer term chart with AAPL's top in clear view with a definitive change in character.

Maybe when the intraday timeframes start screaming I might look at this as actionable.