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I have been VERY vocal about how low volume rallies are not bearish at all, and have been bullish since this rally began (see my posts from March 25 onward for a real-time read of the narrative shift).
After today, however, I'm actually a little cautious for the first time. Let's talk volume nuance.
Volume = participation. Nothing else. On the way down at the end of March, we did not have capitulatory volume. The volume was not special. $SPY volume after March OPEX just kind of sat there around 90-100M shares. It was indicative of the narrative getting tired.
We had an outlier high volume day on March 31 when we gapped up (on de-escalation headlines) and ramped on "2 to 3 weeks" comments.
*This* type of heavy volume is welcome. It was the true turnaround point. Buyers were signaling that they were ready. We then had a Good Friday holiday and some low volume days, and I explained *why* volume was low, in this post: https://t.co/KxsHzzXgVa . Stick with me here.
The market was balancing, so we expect low volume, and on April 7 after cash close the official 2-week ceasefire announcement came. This gave us the monster gap up on the 8th which held, on an elevated volume day.
So after April 8, what do you want to see? I absolutely do NOT want to see heavy volume. Why? We are just above the midpoint of the ATH and the March lows. Elevated volume right here says that sellers are re-engaging. They've been absent for 7 days. The last thing I want to see is *more* participation.
We continued our climb to new ATHs, and in this entire context, low volume means sellers are absent. Great for longs.
However, as we get above new ATHs, rotate, and begin a next leg up, if I'm long, at this point every new poke above highs we make with lackluster volume begins to concern me. Sellers have been absent for weeks. But now we need some signs of initiative from buyers.
For example, this morning buyers showed that they're definitely still willing to bid, as they held a retest of the 4/17 & 4/23 double top breakout, beautifully done.
But this is textbook responsive buying. On the dips they're bidding. On the pushes higher they're taking naps. This is complacency. All it takes is for enough people fail to show up on one of these shallow dips for us to have a meaningful unwind.
With $QQQ up 19% in less than a month, given the reasoning above, I feel it's only a matter of time before we have some profits taken and when bidders don't show up as planned, we can get a big, or multi-day slide.
When "BTD" feels as expected and normal as it does right now, that's the time to be more vigilant. Don't be looking to actively short. Just be extra open to the possibility of a liquidation that is deeper or faster than you may have been expecting.
Hopefully the above is fairly clear. This is only my read on it. Right or wrong, I have contextualized the volume, not just lumped it all together as if every scenario is the same. This is where nuance comes into play, and for me it's nuance based on being around markets for a long time. Understand the volume, and it becomes more meaningful. Cheers!
#ES_F #NQ_F