Bulls need to excercise caution here. We can see the potionial for an UpThrust on the weekly chart of the ES. If the market is unable to rally away from the danger point this week and instead falls further and closes lower, we will enter a trading range punctuated by the early May high to the mid-March low. I suppose we are due for a reaction.
Adding to the potential for a reaction and as I have noted over the past several weeks in the Deep Practice and Chart Reading Mastery classes, I have been a bit concerned with the high volume that came in to the downside during the late February to mid-March reaction. I have highlighted this increased downside volume the red box labled “A.” Increased volume on reactions indicates supply, and there was a fair amount of downside volume there.
While others have been complaining about the “light volume rally,” it is not really the light volume to the upside that is so much of a worry as it is the increased volume to the downside on the last three reactions. You can see this on the areas (red boxes) labeld B & C. Compare these volumes with the rallies in between the boxes. Sellers are exerting their influence.
If the market is unable to rally up firmly above the 1350 area, we are likely to see a retest of the 1290 and perhaps eventually the 1240 areas.
Dr. Gary,
My confusion is that it looks like a lot of volume comes in at the demand line on the daily chart. Also, in many cases the closes seem to be fairly strong, or at a minimum, off the lows. How do you decide which holds more weight, the supply coming in or the increase in volume at the demand line. Or, is the increase at the demand line still supply? Is it also that the structure is changing form that also adds to the weakness?
David
David,
I see volume increasing on down waves. I view this as a possible early warning highlighting potential supply. I don’t see a clear demand line that could have been drawn in advance on these time frames. We will see how it unfolds.