I have been looking at these low volume highs and lows as lacking confidence (click image for more):
This opinion was further bolstered by james dalton:
Tuesday’s market traded sharply lower and away from the fairest price level from December 30th; the pre-market update for today stated that Tuesday’s auction looked like long liquidation rather than a combination of long liquidation and new money selling.
I recall Rob saying once that market participants would pay for low volume run up’s – it leaves poor structure. If this happens in Globex then there the ES profile is thin and there is little to support a drop in that area – the example from Nov 30:
Central banks from the world’s most developed economies, headed by the Federal Reserve, announced that coordinated action had been taken to increase liquidity in global financial markets.
This caused more gapping after thanksgiving from 1200 to 1243 – the 1200 was taken out again the following week.
Now, to 2012 and this week. The DAX was the only market open on 2nd January. I did not expect such bullish behaviour given the state of the Euro currency. Maybe a weak Euro is good for German exports. Regardless it had 2 opening sessions before the UK and the US got back for the new year and it dictated what happened this week. (click image for more)
Frequently, you will find that there are days where the market gaps up on weakness. This gapping up is far different from a wide spread up, where the market-makers are marking the prices up against buying. The gapping up is done rapidly, usually very early in the day’s trading, and will certainly have emotional impact. This price action is usually designed to try to suck you into a potentially weak market and into a poor trade, catching stop-losses on the short side, and generally panicking traders to do the wrong thing. You will find that weak gap-ups are always into regions of new highs, when news is good and the bull market looks as though it will last forever.
Note how I am not making any predictions. I will trade what I see albeit with a bearish disposition. I will still buy but I did see the Euro take out 1.28 and the DAX close one gap and there are more gaps below. It seems like distribution and not accumulation, after all who would have thought a market above 1250 was even possible when we were below 1100 in the early Autumn.