Ord Volume Buy Signals

Looking at Figure 5.1, the leg down to the September 2002 low of $1.02 has Ord-Volume (average daily volume) of 9,700 (9.7k). MAMA bounced up to $1.55 a share and came down again, putting in a new low of $0.92 on volume of 5,000 (5.0k). The Ord-Volume on the move to a new low was nearly

50 percent less the previous leg and meets our bullish setup. Let's review for a moment the bullish buy signal setup for Ord-Volume from Chapter 3:

A buy signal is triggered when a stock hits a minor new low and Ord-Volume on the down leg shrinks by approximately 50 percent or greater against the previous down leg or previous up leg; the stock then closes above the previous low. Both conditions indicate the stock is in a strong position. Confirmation of a bottom is produced when Ord-Volume increases by 50 percent or more on the up leg after the bottom compared to the down leg going into the bottom.

MAMA's close above the previous low of $1.02 triggered the Ord-Volume buy signal. As stated in the rule, we like to see Ord-Volume increase by 50 percent or more on the up leg after the buy signal is triggered to confirm the buy signal and show that energy has switched from down to up. In this example, Ord-Volume on the up leg after the buy signal came in at 3,400 (3.4k). This was not a 50 percent increase compared to the previous down leg going into the low, which would have caused traders to have doubts about the trade. However, on the next rise, Ord-Volume basically doubled to 10,000 (10k), which confirmed the buy signal.

As we can see in Figure 5.1' a "Low Volume Retest" (as discussed in Chapter 4) was created in MAMA at the September and October lows. A price low on MAMA formed at $1.02 on Ord-Volume of 47,000 (47k) in early September 2002. The market bounced and came down again, hitting a low of $0.92 on Ord-Volume of 19,000 (19k) in early November 2002. Volume shrank by 60 percent on the second low compared to the first low, showing that force to the downside on second low was very weak. A close above the first low of $1.02 triggered the buy signal.

Two different volume methods demonstrated in this example depicted buy signals being triggered in the same place. MAMA goes on to rally for the next two years and eventually hits a high of $17.49 a share.

Figure 5.2 shows Questar Corporation (STR) (which in Chapter 4 is displayed as Figure 4.15). STR generated a "Low Volume Retest" buy signal in mid-March 2006. The Low Volume Retest buy signal setup was pretty straightforward: In mid-March. STR tested a previous low on 75 percent reduced volume and closed above the previous low of $68 to generate the buy signal.

Figure 5.3 shows STR in the same time period in Ord-Volume format. Going into the $67.37 low of mid-March, Ord-Volume declined by 65 percent compared to the previous down leg, showing significantly less energy and indicating a bullish sign. A close above the previous low of $68 triggered the buy signal. On the next leg up after the buy signal, Ord-Volume of 57 million is only a 14 percent expansion compared to the previous down leg going into the low. As I've stated, we like to see an increase in volume of 50 percent or more on the rally leg after the buy signal

FIGURE 5.2 "Low Volume Retest" in Questar Corporation (STR) Generates Buy Signal

Source: Chart courtesy of DecisionPoint.com.

FIGURE 5.2 "Low Volume Retest" in Questar Corporation (STR) Generates Buy Signal

Source: Chart courtesy of DecisionPoint.com.

compared to the previous down leg going into the low. Therefore, this buy signal was not ideal.

The rally leg after the buy signal did show some strength (the 14 percent increase), and therefore it is promising. However, since true rally leg strength did not come in after the buy signal, STR languished in a trading range for a month. Notice in this trading range in Figure 5.3 that the up legs had more strength than the down legs, which suggested that the eventual breakout would be to the upside. STR did break to the upside in early April and Ord-Volume expanded by 50 percent compared to the previous down leg, and showed energy had definitely switched to the upside.

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