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Tradewinds

Up Volume to Down Volume on Overnight Gaps

By Tradewinds, in Market Internals

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Tradewinds    12

Tradewinds
Posted

When the es emini SP gaps overnight, I've noticed something interesting about the UVOL/DVOL ratio. There is often huge differences between the Up Volume and Down Volume at the market open after an overnight gap in price.

 

Take a look at the es emini SP on Friday 3-18-11 for example. The NYSE 500 opened with Up Volume that was 65 times more than Down Volume! A 65 to 1 ratio of up volume to down volume. On a day when the es doesn't gap overnight, the ratio of one volume to the other is normally around 1 to 3 either way. So a ratio of 65 to 1 compared to a ratio of 2 to 1 is a huge difference.

 

It only took 3 minutes for that ratio to drop to 30 to 1 at 9:33 am. And it was 11 to 1 by 9:48 am. Those are still very big differences of Up Volume to Down Volume. The interesting thing is, that the es emini dropped in price all day. So the huge Up Volume compared to Down Volume did not make the es go up. The ratio of Up Volume to Down volume was dropping all day, and the es emini went down all day. The es didn't bottom until that ratio got back to a fairly normal range of about 2 to 1, at 3:13 pm.

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Tradewinds    12

Tradewinds
Posted

I also wanted to mention, that on 3-18-11, even though the es went down all day, it still closed higher than the previous days close. So speculation happened overnight, the es went up overnight, then drifted down all day, BUT it was still higher than the day before. It seems that investors were willing to hold on to an even higher price going into the weekend. My impression is, that speculators will "sell the news" no matter what the news is, even if the speculation was correct. It's all relative. With all that Up Volume, is seems like investors were pumping money into the SP 500 on Friday for some reason. So the price falling on the es all day Friday, doesn't necessarily mean that the market is headed down. That's my opinion. I really don't care about trying to forecast what the market is going to do. For what I'm doing, that is almost meaningless to me. I just trade what is. But, I like knowing what is going on and why. I'm not saying that I know why. ;) I'm just saying, I'm constantly trying to figure out why the market did what it did.

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