Whilst yesterday’s strong rally for US equities will have brought some much needed relief to longer term investors in risk markets, the question now is whether this was simply a rally of relief or the foundation for a reversal in the recent bearish sentiment which has seen the YM emini fall steadily throughout May. And the answer to this question lies in volume.
Yesterday’s price action saw the futures contract move from an opening price of 24,917 to a closing price of 25,346, a significant gain and one which saw the candle close with a wide spread, and only small wicks top and bottom. However, note the volume associated with this candle, it is only above average and certainly not what we might expect for such a dramatic move. After all, this is the largest up candle on the chart by some distance, and yet the volume is below the preceding day, and well below others on the chart. So a warning signal perhaps? Today’s price action will be key and whether we see this positive sentiment continue once the cash markets have joined Globex, and from a technical perspective the strong resistance at 25,400 which has been tested this morning is now pivotal. If today’s price action does indeed close above this level, then a potential platform of support will have been created. If not, this will then create further resistance to any move higher. Moreover, as we can see on the volume point of control histogram to the right of the chart, the volume is building steadily as we continue higher to the VPOC itself at 25,800.
So even if this relief rally continues, it will almost certainly stall in the next 300/400 points and move into congestion in due course. Volume as always reveals the truth behind the price action and none more so than on the daily chart for the YM Emini.