[dandxg]

I definitely agree. That said I have seen more than few instances where these low volume tests fail. In fact, I have seen some that punch through the low with lesser volume than than the original S/R marker on higher volume. I will try to find an example to post. It is for this reason, until someone can explain this phenomena better to me I wait for a confirmed reversal and buy or sell the first pullback on lower volume.

[Soultrader]

Originally Posted by dandxg »

I definitely agree. That said I have seen more than few instances where these low volume tests fail. In fact, I have seen some that punch through the low with lesser volume than than the original S/R marker on higher volume. I will try to find an example to post. It is for this reason, until someone can explain this phenomena better to me I wait for a confirmed reversal and buy or sell the first pullback on lower volume.

What most traders fail to understand and lose money buying these tests is this:

1. Professionals will liquidate at the top (long positions from below)
2. Professionals will then initiate short positions at the top
3. Professionals will cover
4. Professionals will cover and accumulate

So there is the possibility of the first volume spike as short covering and not accumulation. Which is why I tend to wait for the second volume spike before using any kind of "tests" based setups. This is for longs only.

[dandxg]

I agree completely. I should have been more specific. I am talking about failed tests I have seen which are the 2nd or even 3rd retest after the volume spike, which is capitulation selling/buying or at least it appears so at that time.

James a request if I could? Would you consider doing some more videos on MP with VSA/PV? Those are great and the 2 methods combined are quite special IMO. Also while I am at James do you still use T and S or did you scrape it for PV/VSA with MP? Just curious as I like the video you did with tape reading that I can't find on TL now? I found it a bit easier for me to use PV/VSA than T and S, but maybe it's just me? Good trading to all.

[rsi]

I think we have to distinguish between low volume tests that are happening after capitulation and low volume tests without having capitulation in the background. Capitulation implies that sellers are done. So a low volume test points that there are no more sellers. If there is no capitulation in the background, the whole volume spike and low volume test (I mean the entire move taken as a whole) can be interpreted as redistribution. A failed test with this setup confirms it as a redistribution. The key point is capitulation in the background.

[Eiger]

Originally Posted by heretodaygone... »

Another low volume test.

This has several positive characteristics going for it, though the volume may still be a bit high. First, there is a potential Selling Climax in the background (January). Friday's price action is a spring, meaning that price has dipped below previous support and was able to rally during the day back above the low of the support. The penetration or dip below support was rather modest, so far. As noted, volume has receded. Each push push down into the climax area has drawn less volume. And, each time this has happened, a rally has ensued. Also, there was a small rally just before the spring. This is often a good sign for a spring as it is indicating the presence of some demand.

You can also look at the other major indices -- S&P and Dow, and see that they both are holding higher lows. So far, this is non-confirmation of lower prices by the other indicies (i.e., they are not confirming the new low put in by the Naz -- a bit of Dow Theory that can be helpful in these kinds of situations).

Even though there are a lot of positives, you won't know for sure whether or not this spring will lead to a new leg up without a couple of more elements (principles) coming into play. It can be still be swamped by supply. Even though volume has receded, it is still fairly high and needs to be tested. If you think back to the 5-min chart of SPY that I posted last week, you can see the same potential here. Along the tops of the narrowing trading range since the climactic action in January, you have a line of supply. SMI would call this a creek. Just like in the 5-min SPY chart, you now want to see the market vigorously rally away from the danger point (the lows) and get up above Wednesday's high on good volume. This would be a potential sign of strength and a jump across (at least) the minor creek. If we then see price react on narrow spreads and lighter volume and give a solid test, we have a pretty good chance of seeing higher prices.

If it doesn't rally and just hangs near the lows in here, or just drops through support on increasing volume, it has much better odds of falling lower. Either would indicate a failed spriing or test.

It will be fun to watch this. Remember, that this is the daily chart, and it will take more time to unfold than the 5-min chart. Nevertheless, the principles remain the same.

Eiger

[DbPhoenix]

The higher lows along with the lower highs and the decline in volume are characteristic of what Wyckoff calls a "hinge". All the major averages have been forming the same hinge and all of them have fallen out of it. While the bottoms of the hinges will likely be tested, this is not good news.

.

[zeon]

Originally Posted by Eiger »

You can also look at the other major indices -- S&P and Dow, and see that they both are holding higher lows. So far, this is non-confirmation of lower prices by the other indicies (i.e., they are not confirming the new low put in by the Naz -- a bit of Dow Theory that can be helpful in these kinds of situations).

I don't mean to quote you out of context, so I quoted the whole paragraph in where you mentioned Dow Theory. In my early days when I wanted to become a long term trader I read some books about Dow and Rhea (I believe one of his followers). But they only mentioned confirmation of the averages: the dow industrials and the dow transports, the nasdaq never come into play. So I'm not quite sure if that "theory" can be applied to another market as well, since the nasdaq only existed since modern times.

[zeon]

Originally Posted by DbPhoenix »

The higher lows along with the lower highs and the decline in volume are characteristic of what Wyckoff calls a "hinge". All the major averages have been forming the same hinge and all of them have fallen out of it. While the bottoms of the hinges will likely be tested, this is not good news.

Although I can see this formation on the chart you posted, I don't really agree that the other major averages have been building the same formation. It looks much more like a sideways range than what you call higher lows and lower highs on the S&P. Also on the INDU I need quite a bit of imagination to see that though... you're free to post a chart to prove me wrong though.