the significance of price and volume mechanics become more important as price approaches demonstrably significant trend lines, horizontal support/resistance lines and moving averages. for example consider the chart of ESRX below. the red circles highlight yesterday's candle and corresponding volume. note the high volume along with the failure of the price to break above the downtrend line or make any appreciable and significant movement, either up or down. yes, the stock closed down for the day, but the absolute change isn't great. this indicates large turnover of stock accompanied characterized by nearly balancing amounts of selling and buying. another word for this is distribution. sustained distribution over time or at key resistance levels is very bearish and helps to build the case for shorting. no back to ESRX - why such action here? there was news recently, but i don't follow that too hard. for better or worse, i prefer to listen to the charts - but that's just me. in all honesty, i am slacking in my ability to appreciate the fundamentals. at any rate, failure to break above or below the long term downtrend line will be significant - keep it on your radars!
3 comments:
Much of the volume is linked to mergers related event, so shorting or going long based on technicals alone might not be the best bet. Event related moves can be vicious.
yeah - i know that caremark issue is on the table. i need to tighten up my posts by indicating that something like ESRX is one to keep an eye on, and that in fact, if i discuss something here, its not about taking a position immediately.
thanks for the input!
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