Ep 128: Technical Analysis – Comparing Volume & Looking at Strength

March 23rd, 2017

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Hey, this is Sasha Evdakov.

Today we're going to be discussing technical analysis - comparing volume and looking at strength. We've talked about ABCD patterns recently. Today we're going to look a little more into a volume on comparing some price action volume from previous time frames.

We'll look at some easy examples at first - like the weekly. I'll take a look at four leading stocks that I picked out to get some insight. Keep in mind these are training purposes.

I'm going to show you some clear examples first to show you what it is that you're looking for. And then other stocks may be a little more challenging to find. Be aware of the fact that I've chosen these examples carefully.

That way if you're starting you should be able to follow along. Then get more out of it. And then, as you continue to hone your skills keep in mind not every example is going to be as easy.

The things that we'll cover you can apply it to any stock chart. But not all of them will follow the patterns or the rules.

That's because:

  • they move a little bit differently
  • there are other news catalysts and things that move them

But in general, this is what you're looking for.

Be Aware of Disclaimer

In either case, keep in mind that disclaimer. All these things, of course, are for illustrative and educational purposes. None of these things are recommendations to buy sell or trade any stock security and so forth. I think all my visitors are knowledgeable and understand this.

It's Time for The Charts

Let's take a look at the charts. Here's a quick insight of what's going on here with the market. You'll get your idea with the market as we go through some of the lessons today.

Here's SPY and we've had some massive selling volume come in a few days ago when you see that with a volume coming in then we had a slight little sideways move right there.

Then now the day's still not wrapped up. It is still 1:15 here in the afternoon. We have a little bit of time before the close. There are some key levels that you do want to watch on this chart.

Quick questions:

  • Can we bring it back up to this price level?

Absolutely.

Let's zoom out a little and go to the hourly or even the 30 minutes. You can get an idea if you're using Fib retracement which is a standard pullback and standard movements. If you're looking at these movements and you take the Fibonacci sequence the typical retracement of any stock is usually 50%. If we take this line, it hits it in a few points.

We're hitting this at a few points, and we're coming right into that and somewhat stalling a little bit.

  • Can we get into this 61.8%?

Absolutely. No question about it. And again you can see how that lines up very nicely. It's right in that gap area as well. There are a few price points that hit at this level as well.

If you're taking it from the swing point, you can see how it's coming in, and that crucial line is that 2260 level. Now if you're doing it from a higher point, it'll be a little bit higher.

Maybe you're doing it from the main swing point. Then if you look at it right there, our 38.2% is right around that level. Our 50% is right here at that price point. In either case, the highs 2363 is what you're watching. If you do it at this price level or this price point you can see 2360 lines up nearly perfectly. It's fascinating how this works out.

What I'm watching is how it goes into these price movements if I'm watching how the price action from here comes up into that level.

That's the whole point of the discussion in today's lesson.

How does the previous price action of volume compare to the current movement or the recent trend?

Tug-of-War Comparison

What we're doing here is we're comparing a tug-of-war. You're comparing the number of people on each side of the tug-of-war.

The left side might be the Bulls. The right hand might be the Bears. What you have is you have people on this tug-of-war line.

You have four people on the Bulls. Let's say they are all equal strength, so you have four people on the bullish side pooling on this rope. Then you maybe only have one person on the bearish side pooling on the string.

Question for you: Which way do you think it's going to go?

The bullish side is going to win. Now if I continue to stack more bears on that right side, we have four people. They're all equal strength. The law of nature states that prices wouldn't go anywhere. They might go up one point then down one end up. But they wouldn't shift. The main reason is everything is equal.

As you continue to stack more bears you might end up with eight or nine bears compared to four bulls.

  • Which way will prices go?

Well, they will go into the bearish side. Which means prices would sell off. The more strength you have on one side, the more likely price will move in that direction.

That's what stocks do.

You might be wondering: How is this example relative to stock prices?

It comes down to volume. Volume is the key and reading volume at a certain price level is essential. Many people don't understand how to do this. I'm going to share with you how to do that and look at volume.

What is The Right Way of Doing Technical Analysis?

TC 2000 doesn't do an outstanding job of this, but they do have a volume at a price. And when you add this indicator, it adds the bullish levels and bearish levels at a certain price level.

I find this is okay, but it's not ultimately the best indicator to watch. Even if you have a better platform like thinkorswim or any other platform, it's still not as good as doing it yourself manually.

The indicators are there to help you and save you time. But they're still not the best. I'm going to show you manually how to do this and give you a guideline. That way you can understand beneath the surface.

If you understand how things work, then you get a good grasp and sense of things underneath the engine, rather than relying on an indicator. That way you know how to fix the engine.

JPMorgan - a Simple Example

We're going to look at the weekly charts for getting started. Keep in mind I picked these examples out, so you understand what you're looking for. Not every instance is going to be this easy.

Think of it as if you're looking for a perfect runner or an ideal basketball shot. Then you evaluate a Michael Jordan on a perfect basketball shot. After that, you're trying to mimic and replicate these things.

The same thing is here in stock charts. You might not find perfect stock charts every time, but if you're trying to mimic for these things, this is what you're looking for.

Some of them are not going to work out as perfect. But this is what you're looking for and as a getting started this is why we're studying more straightforward charts.

We have a chart from 2015 to 2017. The chart mostly goes sideways between the $50 and $70 price range. I mean it went up a little bit in 2015 and down a little in 2016. But it's ranging between $50 and $70. Now we do have a breakout in November of 2016 to the upside at $71.

That stock went into the $90 range up in 2017 currently, and we have a slight little pullback.

Here's how you look at this stock chart. You tell yourself a story. You look and evaluate the volume. For this box that will pop up on the side as we get into these higher prices and change direction. You're looking for a change of direction which is known as swing points.

Those change of direction as they approach the higher prices of resistance how much volume and how much fuel is going into those price levels. You can do this on the bullish side or the bearish side.

If we're looking to invest for the upside or the long side we are usually going to look for the upside movement merely. In our case, I have one in 2015, another one in 2015 that didn't reach it around $70 then $68. Later another one around $65.

We can look at volume, and we start comparing the volume you look at this box.

You can see that's based on millions of shares - 65.4 million that we came into it. This is what I'm always looking at when I'm comparing it. In this box refers to the volume down there.

As we go up and try to break the $70 price level I have 85 million shares to the upside. I have 65 million shares also trying to get to the upside. But it was a red candlestick. And then we fell off - 66 million. This is the weekly - 65 million for the week. It didn't happen. It didn't work out. There're not enough people on the tug-of-war for the bullish side at 65 million.

Here we got 74 million, and that is in November of 2015. Seventy-four million and then we rejected it was 64 — not enough volume, not enough people on the tug-of-war side to push this stock higher.

As we get into 2016, we try to break the $66 price level and the volume there was 61 million for the week. It didn't even have enough juice to get into the $67 price level.

Not to mention breaking the $70 price level. It couldn't do it. The way the break happened was in November of 2016 (the election time).

If you're looking at the weekly volume, it's pretty clear that we had 168 million shares. That is a lot more than what we've had in the past - around 60, 65, 80 million shares.

When you compare that line, you can see it's much bigger obviously for the week. There are way more people on the tug-of-war side on the bulls. They rip the cord and allows prices to continue higher. There's enough gas in the gas tank to take things higher. If we compare this price volume (65 million)to 168 million - it's a lot bigger.

It's nearly two to two and a half times bigger on those price levels. It allowed the prices to move higher — an excellent and easy example to spot. If you were watching this, you can see that even if you got in a little bit late at $73 you still would have been fine.

The main reason is that the gas and the gas tank was that strong. Sometimes you get a break, and we have 66 million on the rejection in 2015. Then you get a break of 90 million or 100 million - it's not as strong as 168.

The more volume that you have there, the stronger the move usually to the upside. That's important to factor in. The other thing that we're factoring in is the time value, just like it takes time for people to get on your tug-of-war side.

It takes time here it also took time. We went it from a 2015 time frame. More people are getting in there and buying at value places.

Then it took a little bit of time to digest that. That's why that sideways move from 60 to 70 took a little bit of time to build. And these moves can breakout on lighter volume. That's the case because of the time factor.

The longer that time, the more time it has to build or the upside price movements. Sometimes you get stealthy breakouts which I don't usually like. I prefer healthier nice volume breakup. But they do also happen on stealthier breakouts where the volume is weaker.

Pro Tip: The more factors you have in your favor, the better off you are. In this case, we're only talking about comparing volume. But put this together with price action, ABCD patterns, chart patterns allows you to have better odds of success of looking at the chart. What's more, you'll see where they're going to go.

Keep in mind we're only talking about comparing the price volume on the breakouts on what you're looking for.

Autodesk - Looking at Swing Points

Let's look at Autodesk. This example is very similar to what we've discussed. We're looking at the swing points.

  • Where did the stock have trouble?

You can see this setup. There're two swing points in 2015. We had a swing point right around $75 that we're watching for the breakout point. And then finally we had that breakout in August 2016.

We had a comeback to retest that price level. When we look at the volume, we start comparing how much juice it has. Keep in mind the time also played a factor - about two years of consolidating.

If it was a month or a week it probably wouldn't be as strong of a breakup. But a two year is an excellent consolidation base. Here we had 14.3 million shares - this is weekly.

And 12.6 million rejected for about 13,14 million shares. We tried to get up into that level as well in December of 2015 with 13.4 million and dismissed it with 7.9 million shares.

It's about 13, so call it 13 million. Now as we approach this price level in August (a week), you can see we went up on 7.6 million, but we still didn't break the $65 price level.

When we broke that $65 price level, we went on 13.9 million. Compare that to the past - 12.6 and 14.3 million.

Even though we had 13.9 million comparing it here 14.3 million - it's slightly weaker. It's somewhat weaker than the first initial blow. It had that time factor to build that new energy the more people were able to get on that side.

 

If you compare it to December 2015, we had 13.4 and 7.9 rejection. Here we had a break of 13.9 which is slightly higher, but that's what allowed that stock to push through.

We are combining it with looking at the volume contraction. You look at how volume contracts between 2016 and the breakout. We had the volume getting weaker - building for the next move. That's what happened.

More and more people were getting on a specific side - in this case, the bullish side, and also combining it with a double bottom here in 2015 to 2016 - from October to March.

There is a double bottom there at around $45. Then you had a creation from 2016 - higher lows being created. Combining it with price patterns allows you to see things and then we had our breakout. If we start looking at things a little more specific now, you get to see it.

We're looking at the volume. Things broke out, and volume was in there. The large volume is coming in obviously with the earnings I would imagine. And then we come back to retest that.

  • How do we retest that?

Well, you retest it on lighter volume. Keep in mind that typical retracement pulls back, comes back. We test these price levels, and then you want to see a bounce.

That's what happened. We had lighter volume coming in at 2.3 and 1.8 million. We're testing that gap. If you look into it, we're proving that gap. And the gap didn't get filled. Typically they get filled, but in this case, we did not get it filled. The main reason is that we had a volume of 2.3 and 1.8 and then we bounced on that volume. Then a volume picked up, and we got seven million the next day.

That confirmation bounce and then a follow-through day allowed that stock continued the push higher. That's what happened. We have that bounce you have that 2.3 million initially on the bounce. And then you got 7 million the next day. That is healthy in the stock.

This is a nice classic setup of what you're watching for. And you're watching it on the daily. Lighter volume on the pullback and more massive volume on the break. It also works on the downside.

Bristol Myers - There're Some Problems

On the weekly, I have a few charts here to show you and explain to you how this one looks on the downside. This one has some significant problems.

You can see it's an obvious example to look at a significant bearish volume. Then we come up, we reject it, and we sell off again. We're trying still.

This one's fascinating, and it's good to look at it because it also works to the downside. You look at volume to sell off on the weekly because it's a little bit cleaner than the daily. That's the case especially when they're getting started. There're 103 million shares to the downside.

Let's take the recent action to learn from it.

This is what we had:

  • 103 million shares down
  • 123 million shares down
  • 73 million shares down
  • 51 million shares down
  • 82 million shares down

Anyways we'll go back to reevaluate this. In general, we had 103, 123, 73, 51 - call it 80 give or take.

This is the case - 80 million shares. We're getting into there as we start evaluating the big up bars from the oversold levels you're getting about 80. That is an almost one-to-one tug-of-war. It's not anything substantial to take that stock higher. But you got 80 on the most prominent top move.

Then you got 39, 38 and 57. Keep in mind I'm still evaluating this because this is our uptrend. The uptrend from October to January has that ABCD pattern.

Next, we have 48 million, 53 million, 27 million, 19 million, 35 million and 49 million down.

Now we start to break down again. Why?

Well, because when you compare 123 million when you compare it 73 million, you compare this volume relative to what it's trying to go into.

You take this and look at it as one bar rather than multiple bars. The downside action from August to September is one bar. And you look at this as one bar - on the right.

There're 2 questions:

  1. How much volume is going up versus how much volume is going down?
  2. Which is stronger?

Let's add them up on a tug-of-war basis. I'll do some adding here for me on my little sheet of paper. We have 103 million, 123 million and 73 million. After that, we have about 51 million and 82 million.

Those are the main ones. To the upside now we have 81 million. Then we have about 39, 38, 57, 48 and then we have 53 and 27.

There are a lot more days always with the upside because it's still slower. Then we have 19 and 35.

If you do quick math calculations:

  • to the downside, I get about 432 million
  • to the upside, I get about 397 million

Here's the exciting part. On the upside, we're getting 397. To the downside, I'm getting 432. If you wanted to do a day-by-day basis, divide 397 by 9 nine. You get 44 on average.

That means I get on average about 44 million on a day-to-day basis. Next, divide 432 by 5, and you get about to 86 million.

  • What do you think (when you look at this) which one is stronger?

We're pooling 86 million to the bearish side and then to the bullish side on average we're pooling 44 million. This is a quick analysis.

If I wanted to get specific, I would do it precisely. This is a learning example, but here you can see how things work.

When we're getting into these price levels, you can see that we're rejecting. We're rejecting by an extra about 42 million to the downside. The thing is that we're still stronger on the bearish side to the downside.

And you also see that the volume is contracting and dying down as we get into the higher prices. Then as the Bears start stepping in that's where you get the rejection, and more selling takes place. This is how you start looking at charts and evaluating volume on a deeper scale.

I've looked at it on a weekly, but you can see the daily you have a lot of gaps. It makes it more difficult if you're new. But you can also do this on the daily.

How Are Things With CMG?

Take a look at CMG, and we do it on the daily. Let's take this recent price moving and price action. We have an ABCD pattern. That's happened here.

You can also look at it on a longer-term ABCD pattern. We still have those patterns, but the daily is less reliable on those timeframes. The shorter the timeframe, the less reliable for a longer term.

That's because you have a strength that comes in from all areas. But on the intraday action, it's more day trading or smaller timeframe traders.

In either case, we have a one big down bar. Then we have this retracement that goes back at almost exactly to that same price level. This big down bar is 3.6 million shares, and we went from the highs of 434 to the lows of 402.

It's about a 32-point price spread. To the upside, as we start pushing into this, compare that with 1.3 million shares of volume.

We have 3.6 million shares down. Then another 1.5 million and now you got 1.3 trying to push it up. You got 1.1 trying push it up. Then you have 1.3 trying to push it up. And then we're getting little movements sideways.

Then again only 640,000 trying to push it up. After that, you get 800,000 trying to push it up. Then 559, 543 and 911 trying to push it up.

You don't even have a million shares trying to push it up. And here in one day, we had 3.6 million.

The day-to-day action is not even over a million most of the time. There's one day that we had a counter-trend bounce. Probably the shorts were taking some profits. But we had a one to one retracement that came up to the highs right there.

There are more sellers overall than buyers of the stock. The stock continues to roll over. In this case, I looked at it from a day-to-day comparison.

I looked at 3.6 to that bar right going up on 640 thousand. Then again I looked at 3.6 comparing it to the next bar. I made a regular comparison in the previous example with BMY. We did a general calculation.

  • When do you use one or the other?

You could do it either way, but when you're comparing shorter timeframes, it's not always as applicable to analyze and do the average. You're looking at multiple factors as always.

If I added 3.6 million and then I started adding 1 million and 1 million that's already 2 million. It doesn't work in this way.

The thing is I know the volume. The energy is a colossal tug down. That means you'd probably want to compare on a day-to-day basis. When I looked at Bristol-Myers, this is another way to look at it. I gave you a variety of averaging prices since we're looking at a longer timeframe.

Since it's many weeks, it's a little bit easier to average. Can you still compare 103 million and 123 million and 73 million?

If we look at Bristol-Myers at 73 million and we look at that bar, we go across, and now we compare that price action at that price level.

Let's look - 73 million compare it to 27 million. It's weaker. Then we get some more action down. Then 35 million compare - it to 73 million. No, it doesn't have the juice.

You can see this works in the same way. If I compare it price to price and the volume at that price level it doesn't have the energy.

  • What happens then?

We sell it off. My goal to average and show you the way that the averaging concept works have an educational teaching purpose.

But you get the same concept or a viewpoint. You get to the same conclusion that there's not enough energy. The key is though looking at the overall behavior - putting multiple things together to seeing the bigger picture.

When All of This Doesn't Work?

One final point is that this doesn't work all the time correctly.

For example GoPro:

Even if we look at it to the downside because this stock had a massive run-up early on in its days, there's a lot of positive sentiment. The sell-off initially was 43.4 million in 2014.

When we tried to get back up above it, it was on 45 million. But it still couldn't handle it. Too many people were antsy to pounce on the stock. That's why you have to take into account the overall company. You have to take into account the overall market on that company and where it's been.

Here we had 43 million to the downside and to the upside you had 88 million in July of 2015. But it couldn't take it higher. Then you had a little sideways action of 29 million and 25 million. And it couldn't break it. That's why you're looking at this 43. And even though you compare it and there's 88 million you have volume. But you don't have a price.

That's why I always say you need:

  • price
  • the volume
  • the behavior

It's acting sluggish. And here you had volume, but you didn't have the price.

You needed the price to also move with it. People weren't willing to pay it. There's a lot of people trading at those levels, but they weren't willing to pay for it with their money. In the end, we act a bit sluggishly for a few weeks. Then things roll over, and this sets up a classic ABCD pattern.

If you do the calculation of the Fibonacci, you almost got into 50%. If you do it more around the closing prices, you pretty much get right into the 50% in that pullback. It works out reasonably well.

If you do the distance here's our A to B. We got 59 points from the highs. From the common area, you got about 52. Taking it from these points - it comes into the $8 level right at $52.

Conclusion

I hope this was helpful and you've learned to look at volume. We've given you a different perspective on how to do technical analysis and compare volume. There're some calculations you have to do if you want to do it right.

If you look at things, you set things up accordingly and do your calculations you can see the volume and the price action. You can see how the volume plays a significant role in which direction that stock will go.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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