medium · Volume Spread Analysis effort-vs-result-spread
A stock in a downtrend produces a bar that dips below the previous low and recovers to close near the high. The volume is 0.45x the 20-day average, suggesting a 'Test'. However, over the next three bars, the price drifts sideways to slightly lower.
Based on the 'Negative Response' principle, what is the most likely conclusion?
- The volume on the 'Test' bar was too low to be significant, and the market requires a high-volume 'Shake-out' to reverse the trend.
- The 'Test' was successful, but the sideways movement is actually 'No Demand' showing that the market is now overbought.
- The lack of upward response indicates that professional operators are not yet ready to support the market, and weakness remains dominant.
- The low volume on the 'Test' bar confirms that all supply has been removed, and the sideways drift is merely a final 'Shake-out' before a massive rally.
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