hard · Volume Spread Analysis effort-vs-result-spread
You see a 'Test' in a rising market (down intraday, high close, low volume). The market ignores the signal and moves sideways for four days on increasing volume, but with narrowing spreads and middle-of-the-bar closes.
What is this 'Negative Response' indicating?
- The 'Test' is being negated by 'Supply Entering' the market; the narrow spreads on high volume show that professionals are now capping the upside.
- The 'Test' was so successful that it attracted too many eager buyers, requiring a deliberate 'Shake-out' to clear them from the market.
- The increasing volume shows that the markup is accelerating strongly, and the narrowing spreads are simply a benign case of 'No Supply' returning.
- This is 'Bag Holding,' where professionals are forced to keep on supporting the price with their own capital after a 'Test' fails to attract any buyers.
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