Low Volume Pullback

More than anything it was the light volume that appeared most notable about Wednesday’s action.. Light volume pullbacks are generally regarded as bullish. Yet in my research I have found that when pullbacks begin on very light volume the pullback has a good chance of deepening. Today’s mild pullback in the SPX occurred on the lightest NYSE volume in over 2 weeks.

These results suggest a mild bearish edge over the 1st 6-7 days. The edge is not the most reliable as the “% Profitable” is close to a coin toss. The edge lies in the fact that downside risk has strongly outsized reward.  I took a more detailed look at this last night in the subscriber letter.
A few caveats to consider.  The huge snowstorms may have had a dampening effect on volume.  Also, while this study suggests a possible downside edge, there are studies I am seeing that suggest upside.  Things aren’t cut and dry right now.