medium · Volume Spread Analysis supply-demand-smart-money
Consider an up-trend that has been 'rounding over' in a 'mushroom top' pattern. You see several up-bars where the volume is steadily declining while the spreads are also getting narrower.
What is the subtle sign of weakness being revealed here?
- The market is becoming genuinely 'overbought' at this level, and a full 'selling climax' is now imminent to reset the entire trend.
- A progressive withdrawal of professional demand as the market reaches a level where they have already finished distributing their holdings.
- This is textbook 'absorption volume' occurring on the upside, as professionals slowly and quietly buy up the remaining retail sell orders.
- Market-makers are simply 'marking down' the stock on low volume in order to shake out weak holders before staging one final dramatic 'gap-up' move.
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