HGSI In Action Ron Brown – June 11th, 2014
Traders saw more absorption volume as the NASDAQ tested supply, but found little as the index closed at 95% of its daily range after being red much of the day. The assumption among traders seems to be that a push to new highs for the Composite, and possibly the small cap indexes, the RUT and the SP 600 in inevitable.
I am basing my observation on the extremely low VIX which closed at 10.99, and the closing range of the NASDAQ over the last 14 days. If you look closely at the Composite chart in the body of this report, you will see that during the last 14 trading days, even on days with red candles, the Composite closed near the high of its daily trading range. This is the classic example of traders absorbing supply during the day and pushing back by the close. The only thing missing is a strong volume push, but if supply is short, low volume is not as critical a factor.
What we need to be aware of is what inevitably happens when the broader markets reach extreme levels of being overbought or oversold; there is always a reversion to the mean, and the indexes are approaching those short term overbought levels now.