Important principles may, and must, be inflexible. Abraham Lincoln
Obey the principles without being bound by them. Bruce Lee
I am not sure which one the above quotes resonance with me more. Abe Lincoln, a champion for human liberty remained steadfast to his principles even in the face of adversity. Or Bruce Lee who kicked Kareem Abdul Jabbar in the head. Regardless of which one you shape your life by the fact is each were successful by following or obeying (as Bruce put it) their principles. This is what this blog is all about. Big love and principles. The principles of supply and demand that I keep yammering on about remain the same regardless of the time frame we are looking at. However, the principles that may not be readily apparent on the a higher time frame may appear crystal clear on lower time frame.
To demonstrate the point, yesterday we spoke again about the importance of the 1594 support and resistance level. Yesterday it acted as resistance. Today is was support. If we look at the daily chart we know that the low for the day was 1594.94 but doesn't really demonstrate the principles. The lower time frames reveals much more about and better demonstrates the battle of supply and demand. The SPX 30 min chart below shows that price gapped up above the 1594 area at the opening bell today followed by a decline back to the 1594 area (1594.94) before the lunch time rally began. Resistance was clearly broken at the open but it was the test of that broken resistance which was subsequently confirm as support which would have given me the confidence to go long. What do i mean by 'confirm as support'? We define support as an area where demand overcomes supply, If price moved back to to the area of broken resistance and continue lower accompanied by higher volume then we know that supply was present and overcame demand. That level would once again be considered resistance. Instead what we saw today was price falling back to broke resistance on lower volume with the 30 min candlesticks closing off their lows as price approached the 1594 area. This indicated that either demand was present or simply supply was lacking. Either way demand was winning the battle at the 1594 level and a rally ensued. Simple right? Now try to do it in real time. Big love for all!
Thanks for reading.