NYSE Up Volume vs. Down Volume: getting a heads up on the crowd

Today has been pretty typical of trading days lately. We had the early morning sell off that found support and then the markets headed higher. At the time of this post, there's still about 25 minutes left until the close so anything could still happen...but the path of least resistance is up.

One way to get a heads up that the selling dried up (i.e. get out of shorts) and then that buying was coming into the market was to monitor the NYSE Up Volume v. Down Volume. I keep a 1 minute chart of the up volume plotted against the down volume. Here's the chart with some annotations of what the crowd was probably thinking at the various times of the day today:As you can see, the day started out with a very bearish reading. Lately, sell offs have been swift but short, as buying keeps coming into the market when it shows red. For that reason alone, short sales are quick momentum trades at best..unless there is something very stock specific going on (see daily charts of MON, PFE, MRK for examples).

Then around early afternoon, the up volume started catching up with the down volume...definitely better cover those shorts at this point. Then up volume overtook down volume and we're off to the races. This has been pretty typical lately, probably because there is a lot of scared trading on both ends. People are watching their stocks go up and are getting nervous, selling quickly when the market shows any signs of selling off and then those same people see buying come in and are afraid to miss the move higher. This makes for some excellent day trading (ride the tide and hop off quickly) and good swing trading (fade the extremes) as well. Check out the up volume vs. down volume if you get a chance...it can be very helpful for timing entries and exits.

TLT