End of Day Volume Analysis

This post is the first of a series on volumes. This example uses the SPY which is lightly traded in the afterhours, so anyone with a big pocketbook and perhaps access to 0% interest can move the market then. Let’s see what happened last Thursday night/Friday morning.

I posted a comment that I thought there would be a pop on Friday morning. Here’s why: First, the chart



We should know that the trend was up from around 14:35. Remember the trend is your friend. Second, on the chart, we see some heavy volume at around 15:48 continuing into the close (Thursday afternoon). You can see the volume approaches 0 during the after hours. The biggest number I see in the aftermarket trading is around 8000 per 3 minute bar timeframe. So small, you can’t see it on the “volume” part of the chart. I put the cursor at the last tick of the evening, and you can see the volume there is 100 shares, in the grey window next to “volume”.

So at the 8:00 AM open, you see the gap. The extended hours opening 3-minute volume is 255854 shares, and it’s that small green bump you see on the volume line next to the red vertical (cursor) line. How did the price go from 133.30 at 18:27 to 133.93 at 8:00 AM the next day with no one around? Remember the buyers are typically below the current price, and the sellers are typically above. This price gap means that there were 255854 sellers that decided to move their price upwards from the 133.30 range to the 133.90 range. The buyers were committed to move in the same direction.

It may also be that the sellers didn’t move, but that the volume below the 133.90 range was quickly exhausted. But we can see by the shape of the price bar that that did not happen. Because the price bar closed lower than it opened (it’s red), that means that sellers had to move downwards after the open. Because the price bar range is below the close, that’s the volume that was bought/sold after the open. The open price was 133.93, and that’s where the first transaction of the day started.

Therefore, all sellers moved their price above 133.93, except for the one block that was sold at that value. So, sellers retreated, and buyers advanced their prices before 8:00.

Where did those buyers’ 200K shares come from? It didn’t seem to be there during the after hours trading the evening before, so it was probably new blocks. Notice the trading around 4:30 on Thursday. Lots of volume. I believe the new stock came from this volume, and from these trades come the 200K shares that appeared for the 8:00 AM open. (this is significant for what comes later).

Now, look at the 9:30 candle. During the first 3 minutes, the range was 133.99 to 133.82. You’ve read about the “opening range”, so looking at these trades, these 3 million shares that sellers moved down to sell, and buyers moved up to buy, define the “opening range”. The next 3 minutes, you see that the close was lower than the open, but the volume was cut in half. The price range during that time was within the opening 3 minutes’ range. The next 3 minutes, the close was equal to the open, and again the volume was about ½ the open volume. But the next price candle, the open was just below the high. But look at the volume, the volume went up to almost 3 million. The price closed below the opening range, so this is an opening range breakdown. Or ORB. If you see ORB in print, you have to check if it’s a “breakdown” or “breakout”. Both can be ORB.

Adding up the volume at the end of the day on Thursday, for the last 18 minutes of trading, somebody exchanged around 15 million shares. And the average for that time period looks like around 6.7 million. So somebody ended up with an extra 7 million shares, at or around 133.40. These people may have adusted their buy/sell orders for only 3.5 million shares (defining the opening range). They may have supplied their own shares to buy them back, defining the range, then started dumping. You can see the price capitulation happen after the 9:39 candle, and the high volume continued until the price returned to the 133.40 value which was Thursday evening’s close.

The effect? Somebody bought low, popped the stock using their own shares, dumped at a higher price, and gave up selling or had sold them all when the price returned to their entry point. How can this be done now? Well, the volume in the market is extremely low, so a ½ Billion$ can move mountains.

So, in conclusion, look at the volume plays at the end of the day. If there’s heavy volume and the trend is up, and then light volume in the aftermarket (usual case), look for a gap up at the early market open, and if there’s light enough volume, or the owners of the heavy volume buy at the end of the day sacrifice enough stock, you’ll see the pop at the open.

The strategy is to sell into the gaps, usually gaps fill. This volume analysis shows you why, and how the people with the big pocketbooks can make the big bucks on creating their own opening snapper.