On Monday February 11, I wrote a blog post discussing weakness coming into the market. In that post, I said that the major US markets (S&Ps, DOW, & Naz) were getting out of sync–a sign that a correction may be coming. I noted that the S&Ps (ES) had to start trading below its February 1st high (1511.00) for a correction to begin. You can read that post by slicking here: Monday’s post.
The Critical Element in Technical Analysis
On Tuesday, again on Thursday, and once more on Friday, the S&Ps tested the 1511 level and bounced off it. To trade well, it is crucial to understand market structure and the levels at which market direction can change. I spend a lot of time on structure with many examples in Chart Reading Mastery. In my experience, structure trumps everything else and until a trader learns how to read market structure, she or he will take trades based on indicators and other tools but if the structure is not supportive, those trades will fail. There is nothing more important for a trader to learn.
It was obvious all week that structure continued to be conducive to the upside. Volume was diminished each day except for Friday. Each day looked like no demand. But structure kept holding the market up. Having the tool of structure let me know that although I was anticipating a reaction, the structure simply was preventing it. Thus, although my bias was short, I traded long because structure told me to do so. That is of considerable value.
Next Week’s Trading
So what’s up for next week? Starting with the weekly chart, we can see that volume was quite a bit lighter than the last two seeks. Also, the range narrowed. It suggests to me demand may be tiring. If we look at last week, we see the market dipped under the previous week’s low (1491.00) and rallied up on increased volume. Buyers were exerting control during the first full trading week of February. So, why didn’t buyers press their advantage this week and take the market higher than they did?
We see from the daily chart that the market traded essentially sideways. Daily lows were held around 1511, but price couldn’t be moved higher than 1522. Except for Friday, volume died off. Buyers may have exhausted themselves the previous week.
The intraday tick chart shows an interesting picture. Each dip back to the February 1st high was on lighter volume. Buyers may be exhausted, but sellers haven’t stepped into the market in force, yet. Note the up wave up on Thursday. Strong volume, but no push up and through the highs. Hmmmm.
For early next week, I’ll be watching the 1522 and 1511 levels very closely. An UpThrust of the highs or a lower high would likely take the market down and through 1511. If it does do this, I would expect the market to work hard at holding the 1500 level. I would doubt the market would drop lower than this given the current market structure. A drive up, through and beyond the 1522 level will obviously resolve the weakness seen as only temporary and bulls will be back in control.
Free Webinar Next Week
Next week, I’ll be doing a free webinar on the psychology of trading. You can learn more here: Free Trading Psych Webinar — Don’t miss it!
Structure & Chart Reading Mastery
Chart Reading Mastery is a comprehensive video course on the Wyckoff Method. It goes into great depth on market structure, including how to develop trade setups with structure. These have very high odds. Keep in mind that trading well requires knowing when to and when not to go with a trade setup or what you anticipate the market to do. This requires strong knowledge of structure, supply and demand, and the major principles of market action — all taught in this course in addition to the classic Wyckoff materials. You can access all of the eight 2-hour videos by contacting Helen (use our contact page). Learn more here: Chart Reading Mastery
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