We have been talking about the presence of supply in the market since it first began to show its hand several weeks ago. Last week, sellers swamped buyers as seen on the weekly chart. This is quite a negative development for the market and indicates that the 1243 level, and perhaps below this level, will be the subject of a test in the near term.
Please keep in mind we are simply anticipating, not predicting.
The daily chart shows a similar picture. The market sold off sharply on Wednesday, Thursday and Friday (labeled W, T & F on the chart). I hope you weren’t fooled by the price action on Thursday. It was not a spring. We discussed why T was not of interest as a spring and why supply was in control in the Deep Practice session on Thursday night. The Deep Practice members were well-prepared for Friday’s sell-off.
In fact, because of the supply in the market, we have been focusing on selling short and recognizing when the buying is weak or has become exhausted so that we could take advantage of the supply that is currently dominating the market. This post highlights some of the trade setups we have been practicing, as well as trade management, exits and other elements of trading the markets.
The sharp sell-off on W, T & F occurred on strong volume. We have discussed this pattern in previous posts: supply is in control. Nevertheless, we are probably a little over sold on the daily time frame and a bounce off of or a little below the 1290 level should not be a surprise. A rally into the 1310 area could set up short opportunities, depending on how it rallies.
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