The start of trading this week will be telling in the S&Ps. Last week’s bar closed down on an increase in volume. This was preceded by no demand the previous week. Could we be seeing the start of a larger down move, perhaps to test the high volume in late February – early March? Let’s take a closer look.
Daily Indications of Selling
On the daily, we had three consecutive days of heavier downside volume to close the week. That’s interesting, but as we emphasize in Deep Practice, it’s never a good idea to look just at the last few bars on the chart.
Not Much Demand
Working backwards from the right edge of the daily chart, the several days under the red line labeled A show mostly up days, but volume is fairly light. Prior to Wednesday’s big down day, the one down day (1) in that cluster of bars showed a lack of supply. Nonetheless, the overall picture in this area is buyers not chasing price up.
More Supply
Last Monday (B), the market tried to rally above the 1558.75 high, but failed. We see selling come into the market here. This was preceded by no demand the prior Friday.
In the downdraft at C, two days show high volume, and both are to the downside. Clearly, buying came in around the support level (1530), but the high volume on these days indicates supply.
Again, a Lack of Real Demand
In the next preceding segment (D), we again see the market rally, but on light volume. The one day that had a pickup in volume (E) was an inside day showing some selling.
The last time we saw good bullish (increasing) volume on up bars was on the rally at (F). Since early March, we have seen selling emerging when we look under the market’s bed covers.
What’s Likely Next
The market can do several things here. To overcome the lack of buying and the increased selling seen in the background and make new highs, it will have to rally vigorously. At the moment, I see that as less likely. More likely is a larger pullback. To accomplish this, it can continue to fall lower immediately. In this case, it will have trouble getting much above 1550. We did see buying come in on Friday, however, and that may serve to support the market and push it up. If it does push up, we might see a lower high be put in around 1560, or, assuming the market continues higher with a weak rally, an upthrust of the recent highs. The key levels should be clear: 1544, 1550, 1560, and then 1568. Watch these carefully early next week.
Learning These Skills
We’ve been doing this kind of analysis in Deep Practice each week, but in more depth than I can do in a blog post. If you are interested in learning to do this kind of deep market assessment, come join us in Deep Practice. You will learn lots of skills and develop your abilities. It’s inexpensive, we meet weekly, and everything is recorded. You get immediate access to the last four sessions as a sign-on bonus, too. You are invited to check it out here: More Information on Deep Practice
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