The pattern of price behavior for Southwest Airlines (NYSE:LUV) is one we are seeing on many stock charts at present with weak efforts to rise being followed by reversals and all played out against the framework of volume price analysis which reveals the truth behind the price action. In this case there were two anomalies arriving in a short period last week which would have alerted stock traders and investors to the impending weakness. So what were they?
First, note the price action of Jan. 28/31 along with that Feb. 1. The first is a deep hammer candle arising Jan. 28 with a very deep wick to the lower body but look at the volume which would seem to be anomalous given the range of the move. This is followed by an even more curious day, where we have a wide spread up candle on what we can only describe as average volume. The price spread is wider than any equivalent benchmark candle on the chart yet the volume is almost half, so another clear anomaly.
Finally, we arrive at the candle of Feb. 1 with volume falling for the third day. So not only do we have a stock rising on falling volume, that volume is anomalous in its own right and as such little wonder the stock duly reversed off the VPOC (volume point of control) at $45.
Moreover, even if this had not been the case, any approach to the VPOC would have sent a strong signal that a pause and congestion would be likely. However, when taken with the associated volume profile in the move, a reversal more likely which was duly delivered.