Volume and Breakouts – Is it Necessary? | 11th August, 2017

This chart was published two days ago. At that time, it was warned that the possible upwards breakout of the 8th of August lacked support from volume and may turn out to be false:

S&P500 Daily 2017
Click chart to enlarge.

That was proven correct. The strong downwards movement from the S&P comes on a day with an increase in volume. This is a classic downwards breakout.

When a downwards breakout has support from volume, that adds confidence in it. Downwards breakouts do not require support from volume; the market may fall of its own weight. Price can fall due to an absence of buyers as easily as it can from an increase in activity of sellers. But when volume supports downwards movement, it may be more sustainable, at least for the short term.

This downwards breakout was predicted by strongest volume during the consolidation being a downwards day.

This volume analysis technique looks at the presence or absence of support from volume on the breakout after a consolidation period to tells us how reliable the breakout may be.

Published @ 12:17 a.m. EST on 12th August, 2017.

2 thoughts on “Volume and Breakouts – Is it Necessary? | 11th August, 2017

  1. Thanks for this reminder. I am seeing a few conflicting signals and the volume issue could be the key to understanding what is going on. The strong move of VIX above its upper B band generally signals an impending end to downward movement. The move down has also met a trendline going back to December but I cannot imagine that this wave down could be done after a mere three day decline. I am going to conclude based on the message from volume that the strong move above the upper BB by VIX is instead signaling a deep second wave correction ahead of the continuation of the downward trend. It could be that this price action in VIX, although new so far as I can recall. In the past, every time I have ignored a move of VIX above its upper B band in favor of continued downward movement I have been proven wrong. Different this time?!

    1. I meant to say above the new price action in VIX could be multiple upper B band penetrations ahead of a significant trend change.

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