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The weekly chart covers from the end of April 2012 up to the present. The weekly OBV dropped below its WMA in early May but when SPY made lower lows, the OBV formed a positive or bullish divergence, line c. By the week ending June 16 (line 3), the OBV was back above its WMA and by early July was in a clear uptrend.

The weekly OBV did make new highs with prices in mid-September but broke its uptrend, line d, in early October. The OBV then formed a series of lower highs as indicated by the downtrend, line e. By the first week of December the OBV had moved above both its WMA and the downtrend (line e) which was a good reason to be bullish on stocks.

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The weekly OBV pulled back the following week but by the time prices were dropping at the end of the December, the OBV was rising and holding above its WMA. The weekly OBV has made decisive new highs in 2013 but shows a wide gap with its rising WMA that may be warning of a February pullback.

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Now let’s look at the daily and hourly analysis of the Spyder Trust (SPY). Though the weekly OBV did form a positive divergence at the November 2012 lows, the daily OBV did not. The daily chart shows that the day after the lows, the downtrend in the OBV, line a, was broken, and by November 21, the OBV was back above its WMA.

A couple of days later, the OBV pulled back to its rising WMA (line 1), which is one of my favorite bullish setups as SPY was also testing its 20-day EMA. Seven days later, there was a similar formation as SPY again tested its rising 20-day EMA and the OBV pulled back towards its rising WMA. The daily OBV did make new highs in December before SPY corrected.

The five-day fear-of-the-cliff selloff dropped slightly below the 50% Fibonacci retracement support but then SPY closed the year back above the 20-day EMA. Though the monthly and weekly OBV were positive, the daily OBV did not break out of its trending range, line b, until the middle of January. The OBV did make new highs and is above its WMA and support at line c.

On the hourly chart I have also added the starc bands as it provides a multitude of good examples of how these bands work in any time frame. Using hourly OBV requires a consistently good level of volume as large surges once or twice a day can make it less useful as the “noise level” is definitely higher.

The hourly OBV was above its WMA on 1/15, and early on 1/17, SPY started bumping into the starc+ bands for several consecutive bars until 2:30 pm (line 3) and SPY closed lower the next hour. This was a sign of weakness and with prices near the starc+ band, it was a high-risk level to buy, but a low risk area to sell.

Over the next five hours, the SPY declined to its hourly starc- band and the OBV dropped well below its WMA. Early on January 22 (line 4), the OBV dropped back to test its WMA. On this rally, the SPY went from $148 to just above $150, point 5, and reached its starc+ band.

This was indeed a high-risk time to buy as SPY dropped for the next three hours back to the starc- band while the OBV dropped back below its rising WMA for a couple of hours (see circle) before turning higher. SPY and the OBV rallied for the next several days as both made new highs.

On February 1, SPY gapped higher and tested its starc+ band for the next five hours as noted by the area identified by point 7. The following day, prices gapped lower so holding a trade overnight was not a good idea. In a few hours, SPY was below the starc- band. By the daily close, however, the hourly OBV had formed another bullish zigzag (line 8) as the uptrend had resumed. As of mid-day on February 6, the hourly OBV had not confirmed the highs.

NEXT PAGE: Bullish on Small-Caps, Too