Constructing rate-market volume breadth from on-balance volume

Build the object first

Market breadth is treated here as a built object, not a chart impression. The historical workflow weights several rate-sensitive markets into a financial volume composite, converts each series to on-balance volume, and collapses labeled breakouts into one signed breadth tally.

Editorial reading: once those steps are fixed, confirmation and divergence are states a reader can audit against the same construction, rather than a visual impression of a single price plot.

Price and volume as the recorded inputs

In this construction, supply-and-demand work uses two recorded series, price and volume. Open interest is treated as outstanding potential volume rather than a third independent input.

Apply volume-price analysis as you would price

Volume-price analysis means reading volume patterns, labeled breakouts, and non-confirmations against the same market's price extremes. It is applied the same way as price work: rising volume bottoms or falling volume tops are compared with price, and breakouts or breakdowns can be labeled into a running total.

A new price high or low that is not matched by the volume trend is treated as a non-confirmation that warrants caution. Divergence is that split: price records a new high or low while the volume trend or signed tally fails to confirm that extreme.

Complete clusters versus a developing cluster

The most bullish volume cluster is two consecutive higher-high readings separated by two higher lows. The most bearish cluster is two consecutive lower lows separated by two lower highs. A developing cluster is any volume high-low sequence that is not yet two consecutive confirming extremes separated by two opposite-side pullbacks; any other sequence is classified as still developing.

Weights in the financial volume composite

The financial volume composite is a weighted mix of rate-sensitive cash and futures series constructed so the same index can carry both price and volume. It is built so one index carries price, volume, and mixed rate-sensitive instruments, allowing yield-curve and credit-perception readings that a single cash or futures series cannot provide.

Specified weights are 50% of a utility equity index, 100% of a 20-bond cash index, 200% each on the front two-contract average of Treasury bond and 10-year note futures, and 100% each on five-year note, Treasury bill, Eurodollar, and municipal futures.

On-balance volume on each constituent

On-balance volume is a running total that adds a session's volume after an up close and subtracts it after a down close, then is plotted for trend comparison. It is computed per constituent by adding that session's volume after an up close and subtracting it after a down close. Higher highs and higher lows in the plotted series confirm a trend, while lower highs and lower lows negate it.

Collapse breakouts into a signed breadth tally

The signed breadth tally is the daily sum of constituent breakout votes, plus one for a bullish breakout and minus one for a bearish breakdown. The published volume index sums each constituent's signed on-balance-volume breakout state, producing a score bounded from +8 to -8, and is charted against the price composite.

Divergence as a tally that fails to follow price

Worked examples record divergence as a volume-tally turn or hold that does not match the price composite. They include a December 1987 volume upturn from -3 while price was still correcting about 5%, a 1989 hold at -4 while price kept falling, and a 1990 stop at -3 on new price lows.

A fast return after an August collapse

After an August collapse in the price composite, the volume tally is described as returning quickly to its pre-selloff level, which was read as a condition that price should at least re-enter the prior summer channel.