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Strategies & Market Trends : Playing the QQQQ with Terry and friends. -- Ignore unavailable to you. Want to Upgrade?

To: J.K. who wrote (144)	5/17/2005 11:07:55 PM
From: Walkingshadow	Read Replies (2) \| Respond to of 4814

This is something that is really, really misunderstood, IMHO. Most people think that in order to get a sustained move up (or down), you have to have to see increasing volume. Exactly the opposite is true. The only reason they can move the bid and ask so easily is precisely because the volume has thinned. When there's heavy volume, that introduces more efficiency as a rule, and usually less volatility. So, more orderly, civilized trading. Boring, too. I look at volume in a number of different time frames, and particularly I examine exactly where the spikes are in the moving averages of the volume. When a spike occurs as something trades DOWN, that is heavy buying interest. When a spike occurs as something is reaching new highs, that is professional selling. That's one reason I think QQQQ will trade down tomorrow----even as QQQQ was rallying so strongly, it was sowing the seeds of its own undoing, because there was pretty strong professional selling. This is typical: professionals buy into weakness, and sell into strength. This bears repeating, and in fact nobody would call you a fool if you tattooed this onto the back of your mouse hand: Professionals buy into weakness, and sell into strength. or: Professionals cover into weakness, and short into strength. Or both. These volume patterns are not easy to see with most charts, unless they are dramatic. But not infrequently, they can be used to time entries and exits pretty accurately. So: when you see something falling hard, then watch the volumes. What you are looking for is a sudden strong surge of volume. Next, wait for a reversal candle. Next, look for the volume to evaporate. On the very next bullish candle or even any candle that closes higher than the reversal, BUY. (The reverse process with shorts) The idea is this: that surge of volume represents buyers (professionals) coming out of the woodwork and clamoring for shares. That will stop a declining stock in its tracks very often, and almost invariably the fall will stop if the magnitude of the volume surge is high. The significance of the volume, then, is twofold: where it occurs (peak or low-point; or as a stock is rallying, vs. as a stock is falling) and the magnitude of the volume peak. Another thing: volume can be "saved up", but eventually the market must react. This was one of the things that led me to call the bottom in QQQQ, and I had been waiting for it and expecting it to happen right around $35, or a bit lower. I had posted about this in late January or February, not sure exactly, but somewhere in there. I said that QQQQ would trade down to solid support at $35. There, I would be watching for big spikes of volume, and that this would represent professional buying interest. When these spikes occurred repeatedly at low points, this represents repeated professional buying----accumulation. Their buy limits are kicking in. And that's exactly how it played out. As QQQQ corrected, we saw very little such buying, and that's why QQQQ continued to fall. When this volume pattern emerged, I knew the end of the correction was at hand. Hope this is a bit clearer, but let me know if you have questions. T