Patience

How poor are they that have not patience! What wound did ever heal but by degrees?William Shakespeare

Beats me what the latter part of that quote means but I get the gist of it. Patience is important. As I stated so eloquently yesterday I was going to wait patiently to see how things unfolded before considering a long position.  Well the market decided to punish those that jumped the gun today by slamming the SPX 32 points lower before staging a midday rally.

I was asked the question after yesterdays post if we were at support or resistance since the market fell below the 1594 support area and rallied back up (after hitting 1578 support) to around this level at the close on Friday.  That was an excellent question and I can tell you with 100% accuracy that it was resistance after today's action.  Just kidding.  Nonetheless it is a very good question and the answer can be found by analyzing the lower time frames.

Below is the 15 min intraday SPY chart for the last 3 days.  We have labeled our support and resistance area that is in question.  The trouble started on Thursday when we broke support on increased volume.  Again in order to break support we need supply to overcome demand and that is exactly what happened.  Once support is broken it becomes resistance.  Why?  Because supply has ovecome demand which is the definition for resistance and also the requirement to break support.  See the connection!?

On Friday at the open, price gapped up to resistance and fell back until midday (something about midday and rallies?) when the market began to rally. You will notice that about 30mins before the close price again reached resistance once again before dropping for the remainder of the trading session.  Even the most naive of traders would consider that resistance.

So now what.  Well the market does look ugly and fear is definitely in the air. However, if we look at the daily SPY chart below there are a couple of things to point out.   First, volume has been decreasing on these down moves and the price is closing significantly off its lows. This signifies that demand is coming in during the session (apparently around lunch where the fat cats are too lazy to hit the sell button).  I believe patience is again required here before going long.  Although I continue to view the high volume as a transfer of ownership from weak to strong hands I would wait for a retest of this heavy volume area after a brief rally.. How far can we rally?  How about that area where supply overcame demand.  That is right ladies and gents at resistance which currently stands at 1594 level for the SPX and $159.6 level for the SPY.  With that in mind and with Billy Shakespeare's famous last words I say to you "Go get 'em champ!".

Thanks for reading!