Sunday, June 16, 2013


After my last long winded post I've run short of time on provide actual comments on the market itself.  So this going to be a bit of a wham bam thank you mam kind of post.

$162.80 level as I've been talking about came into play again on Fridays down move finding support in that area.  Notice I said area.  The low for the day was actually $162.91.  To clarify there is an inherent margin of error with these support and resistance levels derived from Point and Figure (PnF)charts.  This is due to volatility.  If we look at the 15 min PnF chart below you can see that the $165.75 level an obvious support.  Wait a minute you said $162.80 is support and we hit $162.91 as a low before we bounced.  You are full of it!  If you draw your attention to the box size it is $0.35 meaning each box is spaced by $0.35.  Also remember that in order for a box to be filled price would have had to move at least this amount to fill an addtional box.  This is calculated by using the Avenge True Range for the last 20 fifteen min periods.  So as the volatiliy of the SPY changes so will the box size. Understand this the if we take $162.75 as a support and resistance level from chart below and its current volatility we can apply a margin of error of $0.34 on either side getting a range of 162.41-163.09.  Notice how its 1 cent shy of being exactly the next box size above and below 162.75.

Now that we got that out of the way lets look at the 5 min SPY candlestick chart and see what happened last week.  I highlight two areas where price reacted to the $162.80 area.  The first area you will notice that price broke above $162.80 on increasing volume meaning demand overcame supply.  What you will also notice is that price then came back down to test that area of broken resistance on decreasing volume indicating a clear lack of supply and then resumed its move up. That is a classic pattern that I watch for and execute on over and over again.  It clearly demonstrates that battle of supply and demand at important areas of support and resistance.

In the second area the downtrend that began in the morning slowed down as price approached support.  However, the key here was looking at how the 3 highlighted price bars continued to close near the top of its price range signifying demand was present at this support area.  Finally on the last highlighted bar price fell to $162.91 but closed near the top of its range on increased volume demonstrating a transfer of ownership from weak to strong hands.  Again demand overcame supply.  So where do we go from here?  Up?  Maybe?  There is the 20 day moving average (not shown) at $164.61 you might have to contend with.  Lets watch and see how price and volume react at these levels.

Thanks for reading.

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