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How to Short the Nasdaq on Price and Volume Patterns

Posted by David Bean on

Yesterday, June 9, 2017, was a tricky trading day. The Nasdaq made new all time-time highs in the first hour of trade, followed by its biggest sell off of the year. Technical selling based on profit taking at VIX lows looked like the theme yesterday as there was no market news that I saw to drive this price action. At 10:32 am EST, the VIX hit 9.37, taking out the 9.39 level from 2006, making its second lowest all time low (the lowest low is 8.89 in December 1993). 

The strategies had a challenging day as the stock indexes took long trades instead of shorts since the NYSE TICK was more bullish than bearish early and surprisingly didn't generate short signals later in the day either. The $TICK looked "broken" yesterday. Other longs were based on counter trend trades.Gold and Silver were also down as they did not respond to the negative movement in the Nasdaq. By the end of the day, the Dow was up 89.44 while the Nasdaq Composite was down -113.84. Typically when the indexes are mixed, the price action is narrow and you might see, Dow up +20, Nasdaq down -2. Was this a one day wonder or the beginning of something new?

So while the strategies had a challenging day, it is nice to see some movement in the market and to take a look at a strategy using the Insiders Volume Indicator package on the one minute charts. Volume Sum Day and Volume Sum Day Dynamic are discussed in the video below. In short, Volume Sum Day gives us the long term day trade trend while Volume Sum Day Dynamic gives us the short term day trade trend. When the long term trend shows a strong trend in one direction such as yesterdays down move, we short the rallies with a short term move up in volume, noted by the Volume Sum Day Dynamic indicator.

We discuss this approach because we believe it could be a beneficial way to trade going forward and potentially a beneficial way to trade a market that starts a trend that isn't captured by market internals. Looking at a market on its own and looking at price and volume can be a pure way to trade.

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