I had this question come in that I will try to answer.
I'm interested in learning how you interpret the opening, low, high, and closing ticks on a day's bar. Are there any general trends or thoughts to be relayed here. For example, seemed like the market rose sharply today and then gave back a bunch of gains toward the close. What am I to interpret from that, if anything? What kinds of actions are best? Weak opening, strong close???
The short answer is I don't have any rules of thumb here.
A strong open weak close has different implications at different times. Back in 2003 there was little significance to a strong open weak close. A bunch of those right now has more importance. Generally this is a sign of weakness but I guess I could sum up by saying the consequences of this weakness is the variable.
The question asks if weak open strong close is better. Probably, most of the time. Of course weak open strong close on the Friday after Thanksgiving would mean very little. That is an extreme example but you get the idea.
If Tuesday is down will it be because of a weak close on Monday? Or will it be because last week had a strong finish, or the DELL news, or the Fed, or something else?
I don't spend time studying the tick and so forth. When these types of indicators reach extreme levels it is easy to find out about it. Most of the time these things don't offer a lot for longer term investing most of the time. Given there is only so much anyone can watch, watching something that is only relevant, to me, a couple of days a year may not make sense.
This indicators in the question are more relevant for folks that consider themselves to be technicians.
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1 comments:
Nice blog and excellent insight. One way to answer this question is to go one degree further in granularity in order to arrive at a conclusion about the day's close. Specifically one may predict whether or not the stock or market will close strong on a particular day.
One key assumption to understand is that your reader's original question defined a 'strong close' in terms of price action - not volume (although the two are correlated).
My answer rests squarely on the shoulders of Brett Steenbarger Ph.D.'s recent analysis in an article he wrote for TradingMarkets.com. Consider when the day's high or low occurs in the market or in a particular stock. "When prices make early highs or lows and cannot move beyond these in early trading, I label those extremes 'candidate daily highs' or 'candidate daily lows'. And when prices make new daily highs or lows in the midday period, I entertain the hypothesis that the ultimate daily highs or lows have not yet been put into place."
The probabilities are explained in his article and in my summary that describes how to model this strategy. Nevertheless this approach towards daily observations suggests one can predict strong closes.
Summary: here
Original Steenbarger article: here
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