Every picture tells a story and the same truism could be applied to any of the daily charts for US markets as we come to the end of another dramatic week, and in this case, I’ve settled on the YM Emini for March, the futures contract for the Dow Jones Industrial Average.
If we start with this time last week, the deep hammer candle on extreme volume signaled the first appearance of stopping volume, with the prospect of a recovery in due course. In such volatile times, it was no surprise to see this appear the next trading day, Monday of this week, with a dramatic recovery on excellent supporting volume, but one which triggered the volatility indicator, and therefore the prospect of congestion developing. Day 1 of five over. Day two signaled weakness as the recovery failed to follow through with a high volume down day following. Day three followed with another surge higher, but the associated volume was average and well below what we should expect for such a sustained rally. A trap was laid and sprung on day four with the indices selling off strongly on good volume, a move repeated today on day 5 with marginally higher volume. As an aside, overlay days 3 and 4 and we have a two-bar upthrust.
So, what can we expect next week? In simple terms, more of the same and in much the same price range, and as I outlined in my post last week when a market is being crushed in this way, it takes more than one day of stopping volume to absorb all the mountain of selling pressure. Think of it like a sponge mopping up a spill. It takes several attempts. It’s the same here and as such, more plunging price action to clear the selling pressure from the market. Comparing the current volumes with those of last week, the weight of selling is already starting to decline, but it will take further panic selling to clear it completely, before volume subsides, congestion follows, and the reversal begins with a low volume test.