medium · Volume Spread Analysis supply-demand-smart-money
A stock breaks above a 3-month accumulation range on a wide-spread up-bar and high volume. Two days later, it pulls back to the breakout level on very low volume and closes near its high.
What does this 'Test of Breakout' signal to the professional practitioner?
- The low volume seen on this pullback is really 'No Demand' in disguise, indicating the breakout was just a 'Trap Up-move.'
- The old resistance has successfully become support, and the lack of selling pressure on the pullback confirms the mark-up is healthy.
- The high volume on the breakout was actually 'Supply Swamping Demand,' which means the stock is likely to fall back down into the range.
- The stock is entering a classic 'Mushroom Top' rounding-top reversal pattern and should therefore be shorted immediately at this breakout level.
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