To understand a patient’s condition, a doctor may order an X-ray and other tests. An X-ray provides the doctor with information that would otherwise be difficult to accurately glean.

Given the volatility in the stock market, should investors be looking at the X-ray results of the market? If you answered “yes,” take a look at this chart.

The VUD indicator shown on the chart is akin to an X-ray of the market. The chart is of S&P 500 futures ESM8,  Similar conclusions can be drawn from popular ETFs such as S&P 500 ETF SPY,  Nasdaq 100 ETF QQQ,  and small-cap ETF IWM.

The reason for using the futures chart is that it provides better information. In periods of extreme volatility, the fastest players tend to focus on the futures. Please observe the following from the chart:

• The chart shows an X-ray of the market in the form of the VUD indicator. The VUD indicator is the most sensitive indicator of true net demand or net supply in the real time.

• When the supply of stocks is higher than the demand for stocks, the VUD indicator is shown in orange. When demand exceeds supply, VUD indicator is shown in green.

• The chart shows a strong negative VUD indicator in the first part of the market decline.

• The chart shows a rally attempt.

• The rally attempt was accompanied by the VUD indicator turning up only feebly. This predestined the rally attempt to fail and stocks to decline.

• As the VUD indicator predicted, the rally attempt failed and stocks went much lower.

• In the second down leg, the VUD indicator was again very negative.


The paradox

When the VUD indicator is extremely negative over a period of time, it sets up the market for a bounce. If the market was not so high and trade war concerns were not present, the interpretation of the chart would have been that the market is in the process of retesting February’s lows and then likely to bounce higher….Read more at MarketWatch.

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