Looking For Follow Through

May 10, 2001
Eddie Kwong

If I were allowed to use only one indicator with price bar charts, I
would pick
“volume” without hesitation. Volume can tell us the overall condition
of stocks. If a stock is rising with increasing volume, it is safe to assume
that the current trend will continue. If a stock is breaking out above its
resistance level, you must confirm the validity of the breakout with a huge
increase of volume. Needless to say, a breakdown below an important price level
accompanied by increasing volume is a bearish signal.Â

There is another interesting aspect of volume indicator. You can see it clearly
on the daily chart of Varian Semiconductor Equipment (VSEA).
It has happened already three times this year. I want you to focus on three price
bars: Feb.15, Apr.12, and Apr.19. They are all wide-range bars and each is hitting
a two-month high with extremely heavy volume. Another curious coincidence is that
each wide-range bar was followed by an inside bar the very next trading session.
Also note that each inside bar carried big transaction volume, but failed to
follow through to the upside.