[VSA] Volume Spread Analysis Part II

[Sledge]

OK, I'm going to ask the $1,000,000 Question:

At a Market top, we know we generally have bars of Ultra High Volume with wide spreads.
Then we may see an "end of rising market" bar or we may not.
Additionally, we may also see upthrusts and no demand as the top peters out.
We may also be so lucky as to get a final upthrust into new high ground and know that the market is now ready to fall.

Since the markets don't always give us this "perfect" set-up to follow each and every time but we get the following scenario:
1. Wide Spread Bar Up with Ultra High Volume
2. No Demand Bar
3. Upthrust
4. No Demand Bar
5. No Demand Bar
Then the market starts to fall- and in a TIDAL wave of force, it comes crashing down.

THE QUESTION IS THIS: When do the professional money decide when "its time?" Does one big player take the leap and start the freefall and the rest "jump in?" During my studies of VSA, I have never been able to call with extreme confidence- this particular move. You can see market tops flounder for days, while other times, you may get one or two no demand bars and boom- the bottom falls out. Anyone here with any insight on this?
Sledge

[DbPhoenix]

There are a number of posts above addressing today's action, and there are a number of things that should be kept in mind.

First, we are at multi-year support. It's much better in the NDX than the SPX, but it's there nonetheless. Therfore, it should come as no surprise that there are going to be interesting times here.

Second, the market has been gliding into this area since the end of January. In fact, one could argue that the volume at the beginning of the hinge signaled preliminary support, if not a selling climax (volume was also decent at the beginnings of the same hinges in the SPX and DJIA).

Third, the hot poker today was news-related. If there was in fact accumulation going on in the underlying, the news may have sparked a response for which some of the bigger players may not have been prepared. Perhaps whatever accumulation was going on, if any, was supposed to go on longer. And it may well do so here (refer to the chart I posted earlier and note where we are with regard to longer-term S&R).

While it's always possible that we may head right back into the old zone, it's also possible we may establish a new, lower one here.

[Eiger]

	Quote:	DbPhoenix
	I suspect that the "SOT" comes from SMI. Wyckoff's thrust was a short, sharp, and headfake move up, the opposite of a shakeout. What you're referring to is simply a secondary test or retest. FYI

Actually, Db it is Wyckoff. He talks about shortening of the thrust in the case study of the NY Times Average of 50 Stocks during 1931. SMI may have later expanded on the concept, like they did in several areas.

Eiger

[mister ed]

	Quote:	Eiger
	You have some of it right, but there are other things going on in the chart. I made up a chart of SPY so you can see what I refer to. In classic Wyckoff, markets don't turn on a dime. They need to first stop the down move, then build cause (i.e., allow for a period of accumulation). There is a sequence that markets often follow that Wyckoff identified. We saw it today. After a down move has been under way for a while, you will get a rally that will typically (not always) last longer and be larger than any previous rally in the down trend. This is called Preliminary Support and signals that we are getting close to the end of the down trend. If you are familiar with Elliot, think of it as the 4th wave. Where you had the Selling Climax, was actually Preliminary Support. There was climactic action, but not really the SC. There was a secondary test (ST), but note that that ST still had a lot of volume. Then, on the rally up you had a series of up thrusts at 1 and No Demand bars at 2. See how the volume was receding on the rally? You don't want that if you are looking for or in a long position. It means there is no momentum (professional buying) behind the rally. Thus, the market is weak. Contrast this with 3 on the chart. At 3, the bars were closing on thier highs and volume was increasing with the rally. Professional support was behind the move. That first rally had nothing behind it and a minor Buying Climax (bc) occurred at resistance and the market fell back. The Selling Climax came later with the heaviest volume on the chart. Two other tests occurred, and accumulation had apparaently been completed as the market then rallied vigorously. Hope this helps. Eiger

Eiger - thanks very much for this analysis, which you have obviously put a lot of work into, reproducing the chart etc. I, for one, find the way you have broken down the action and analysed it in terms of principles really valuable. Really helpful thank-you.

[DbPhoenix]

	Quote:	Sledge
	THE QUESTION IS THIS: When do the professional money decide when "its time?"

Long before the scenario you've provided. Money that is literally "smart" sells on the way up, not at the top. Volume in September was crap across all the major averages. This suggested to me that they were done. Some people called it a head and shoulders. I didn't because the volume pattern wasn't right. But the end result was the same.

[mister ed]

	Quote:	DbPhoenix
	Long before the scenario you've provided. Money that is literally "smart" sells on the way up, not at the top. Volume in September was crap across all the major averages. This suggested to me that they were done. Some people called it a head and shoulders. I didn't because the volume pattern wasn't right. But the end result was the same.

Sledge, Db, I suppose the better way of putting the question is when does the mark-up or (in this case) the mark-down begin?

Sign of strength (mark-up), sign of weakness (mark-down) is the beginning, the 'jump over the creek' or the 'break of the ice'. Sorry for the jargon.

[DbPhoenix]

	Quote:	Eiger
	Actually, Db it is Wyckoff. He talks about shortening of the thrust in the case study of the NY Times Average of 50 Stocks during 1931. SMI may have later expanded on the concept, like they did in several areas. Eiger

You are correct. He refers to "upthrusts" and "upward thrusts" a number of times, but he does use the term "downward thrust" once, referring to the end of April.

Drinks are on me

[Eiger]

	Quote:	mister ed
	Eiger - thanks very much for this analysis, which you have obviously put a lot of work into, reproducing the chart etc. I, for one, find the way you have broken down the action and analysed it in terms of principles really valuable. Really helpful thank-you.

Thanks, Ed. Glad you like these. I do this every night with my charts -- I annotate the entire day on the 5-min. I also indicate important areas and bars on the 3 & 10-min charts, too. I love this stuff, and I think that analyzing charts like this is great way to learn. You really do begin to see this stuff as it unfolds.

Eiger

[zeon]

Just like to say that I appreciate all the feedback everybody's giving eachother here and I am proud to be a member of this board with so many very knowledgeable traders. I'll let things sink in for the rest of the day before continuining my studies of Wyckoff.

[mister ed]

	Quote:	Eiger
	Thanks, Ed. Glad you like these. I do this every night with my charts -- I annotate the entire day on the 5-min. I also indicate important areas and bars on the 3 & 10-min charts, too. I love this stuff, and I think that analyzing charts like this is great way to learn. You really do begin to see this stuff as it unfolds. Eiger

What I find in real-time is I am 'rushed' and often will miss things. This is a sign that I haven't 'absorbed' it yet (for want of a better word) as there are some parts of the analysis that come very quickly, those things which I have obviously absorbed already. Doing such an analysis, breaking it all down, and seeing it done by others too (such as your post) after the event helps to learn and absorb, I find.