Patterns and Volume
Each evening we focus on the most interesting aspects for the upcoming trading day. The comments are based on observations of the nightly updates of the Stocks/Sectors and Market Bias pages. They are provided for educational purposes only and are not intended to be direct trading advice. Also, keep in mind that these remarks are made up to 12 hours in advance of the markets opening. Therefore, overnight events may alter the outcome of these observations.
At the time this is being published, the S&P Globex Futures are trading 1.80 points higher and the bond market is trading down 4 ticks.
I’m often asked about what role volume plays in set-ups. First and foremost, I think the pattern supercedes all other factors. In other words, if I really like the pattern, I’ll trade it with or without a volume confirmation. However, it doesn’t hurt to have the volume behind you. With that said, volume should increase during thrusts (breakouts, fast moves etc…) and decrease during consolidations (i.e. pullbacks, flags, pennants, triangles etc). Manugistics [MANU>MANU], a stock on tonight’s New 60-Day Highs on Double Volume List, provides a good example of the concept. Notice how the volume decreases (a) as the stock consolidates and increases (b) on the thrusts (up arrows). If you’re a breakout player, this one may be worthy of considering now that it is once again in thrust mode.
On tonight’s Pullback List, several stocks look interesting to me: Procom Technology [PRCM>PRCM] has formed a bullish outside day during a pullback-one of my favorite combination of patterns. Vari-L [VARL>VARL] recovered nicely from Friday’s sell off. Nokia [NOK>NOK] gapped lower on today’s open but reversed to close well. This suggests a resumption of its strong uptrend. And finally, Beas Systems [BEAS>BEAS] still looks like it has potential even though it closed off its highs today. Just wait for this one to take out its prior 2-3 bar highs for confirmation.
On the short side, Antec [ANTC>ANTC], mentioned recently, gapped higher on today’s open but reversed to close poorly. This suggests that the stock is still in trouble. Minimed [MNMD>MNMD] (not to be confused with “Mini-Meâ€), on the Pullbacks Off Lows List, is consolidating at lower levels and looks poised to continue its downtrend.
Best of luck with your trading on Tuesday!
Dave Landry
davel@TradingMarkets.com
PS – Reminder: Protective stops on every trade!