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Sentiment, Volume, Seasonality: Putting it All Together

New insights from our intraday U.S. stocks analyst

by Jordan Kotick
Updated: May 24, 2018

When you're looking at the stock market from an intraday perspective, you have to juggle multiple indicators very fast. For tips on how to do it, ElliottWaveTV sat down with Robert Kelley, editor of our U.S. Intraday Stocks Pro Service.

Dana: Hi, I'm Dana Weeks, and I'm back today with Robert Kelley, Elliott Wave International's Editor of the US Stocks Intraday Pro Service. Hi Robert.

Robert: Hi Dana, good to talk to you again.

Dana: You as well. So to start off, you use multiple indicators. Let's take a look a breadth and volume. Can you walk me through these?

Robert: Sure, my favorite breadth indicator is the Advance-Decline Line, and it keeps a tally of the net number of stocks that are up or down on the day of the New York Stock Exchange. One of the things I look for there is a bullish or a bearish divergence. Volume, I think is most helpful when you see it really surge. Sometimes, usually at significant bottoms you will see a big volume surge. A volume spike, so I look for that and of course if it's a big market move, like an advance and volume is surging that supports the idea that there's probably going to be, is probably going to continue.

Dana: And how does volume look at the top?

Robert: Typically I've seen it diminish at certain tops. It's more helpful at bottoms I would say. But tops, usually it's more of a rolling top or as opposed of bottoms which are spikes. So the volume at the top is not quite as helpful as it is at the bottom.

Dana: And Robert, what about sentiment and volatility?

Robert: Well, you know I do an Intraday service and one of the things I watch closely is the put-call ratios during the day generated by the Chicago Board Options Exchange, and one of the things I'll really look for there is a reading that's kind of extreme. For example, recently I had, we had a day where the market was advancing pretty significantly, and the put-call ratio that day I think was higher than it was the day before on a down day. And that was a signal to me that traders are bearish, they're fighting this rally and that's a bullish sign. I reported that to my subscribers and the market continued to rally from there. So that's an example of how short-term sentiment can be used. Volatility is another great indicator and one of the biggest things I look for there is when volatility is not confirming the move in the stock market. So, if the stock market is making a new short-term low, and volatility is not making a new extreme in this case to be a new high, that's often a signal that the move is not going to be sustained and quite often will be reversed. So, volatility is a good indicator to look for with divergences.

Dana: Robert, that's a lot of information. How do you put all that together?

Robert: Yes, basically what you look for is when one of these indicators is really showing an extreme or a big divergence and so normally you won't see that all the time. It happens occasionally and when you see those extremes or those divergences, that's when you can really have confidence hopefully in your wave count. If you're trading can use that to put on a position or take off a position. So yeah, you just look for the things that are standing out when they happen to come along to enhance your confidence level in the wave count.

Dana: Robert, are there any seasonal patterns that you're watching as we approach the second half of the calendar year?

Robert: Well basically, the seasonal pressure is going to be up until, throughout the summer. Of course seasonals are not something you can count on and use as a blueprint for where the market is going, it's a tendency that you add to your other forecast, your other tools. We could see a slowdown of activity later in the summer. Typically there's a seasonal peak in early September and volatility picks up and we have a seasonal down pressure into October. One of the sectors you're going to look at for possibly being a leading indicator is the tech sector. It tends to be more volatile. If we see that sector start to get more volatile in September, that will be a good sign probably that the overall market is going to do the same also.

Dana: Robert, I know you've got a lot on your plate, so I just want to thank you for taking out some time in your day to chat with me.

Robert: All right Dana, thanks. Good talking to you too.


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