The anatomy of a market bottom…
Posted by MC on Aug 20, 2009
I usually hate peoples “similarity” charts. “Look at what happened back then…it’s so similar to the cycle today.” “History repeats itself”…BLAH. I discount most those charts because they rely on wave counts, indicator levels etc… and not the absorption of the float by strong hands. Indicators don’t make a bear market turn bull…the majority of shares being in strong hands which limits supply does.
Here we can see how a bottom is created. ABSORPTION of the majority of the float. Shown quite well when the lows are tested or break and there are not very many shares being sold. Then when resistance becomes support without a big volume glitch it further solidifies that supply has been all but removed from the market. I’ve heard rambling about…”the markets rising on low volume and there is no demand.” I read this as no supply myself. I digress, I’m a contrarian and some have suggested I begin to wear a tin foil hat. Maybe I’ll fit one up should I be proven incorrect here. 
I must say this…this current bear market had an absolute fall out and didn’t oscillate or cycle real cleanly. Also there is some lingering resistance over the line I drew, albeit fairly weak in comparison to the chop I illustrated as resistance. Given the volume traits shown I must say I’m pretty comfortable with the bulls here. Remember, volume should be low here because supply was drastically reduced in the market and prices will auction higher as long as demand outweighs supply.
GL my fellow tin foilers! 
More insight, building on my previous forum posts on context
Posted by MC on Aug 30, 2008
First see http://www.tradersbase.com/forum/technical-analysis/743-some-thoughts-volume-taken-context.html
Trendlines work the same as structure support in their use to see which side is winning the tug-o-war. A candle with a long wick bouncing off support with big volume could give insight that the bulls defended that level with vigor and probably ran stops to cause a spike they used to buy cheap. That same candle with no support causing the bounce would mean alot less in terms of a traders odds. This is why context is so important, the market 9/10 times won’t reverse in the middle of nowhere.
Now small/tight candles at support/resistance shows rotation and balance which I find as important as wicky candles. The more volume, the more rotation came in at that level. Everyone loves BIG candles, but super small candles with big volume are at least as important. If you see a big volume on a tight balanced candle get ready cause bets have been placed by both sides and only 1 can win that move in the end. 
Generally it’s a fade situation because if you’re at support and bears can’t drive it lower bulls stepped in to defend or vice versa at resistance.
Final thoughts for now…
BIG candles regardless of volume = momentum
Go with the flow till it retraces or balances/rotates.
Tight, high volume candles = balance nearing an end
Balance will give way to momentum soon, let the direction show itself then hop on the momo train.
