Today was the perfect example of how we need higher volume to confirm a break of support.  We see this with stocks and the overall market.  We need levels to be broken with significant volume as confirmation.  And today we did not see this.

SPY over the past two days have violated 88.50, which was a level the market had not closed below since the middle of May.  Today we violated SPY 88, an important level as we have traded in a range for the past two months primarily between SPY 88 and SPY 93.  And our next level below SPY 88 was 87.50 which was also violated today.  But we saw all of this on very light volume.

The best example of our light volume was the move with V below 60 with SPY breaking 88.  Yes V eventually traded down to 58 as SPY traded near 87.  But we saw no institutional seller step into V into this downmove.  I saw no aggressively held offers on the way down.  There wasn’t the hitting of bids and low offers stepping down that we would expect.  There was a slow leak lower.  And it was all on light volume.

So when we see this do we forgo the short?  No.  We short market stocks below levels and watch the SPYs as an indicator for confirmation.  And I did this in V today.  I was short.  But at no time did I aggressively get short because of the low volume.  I did not see an aggressive seller.

So I was short, but carefully.  Lil Mike and I held V all the way to the bottom near 58 where we covered.  We caught almost the entire move down.  If I had seen aggressive sellers than I would have shorted with more size.

And then when we started to see the market rebound into the close I was quick to cover my FCX short.  And in fact I focused on getting long FCX, even though we were still below SPY 88.  The volume was too low for me to make much of the fact that we were below SPY 88.  I was mentally agile.  And I caught some of the upmove in FCX.

Anyway, watch the volume when levels are broken.  And levels broken absent significant volume should be traded carefully on the short side.

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