Monday, September 9, 2013

From Support to Resistance

Elementary my dear Watson! 
The observations made in yesterday's post  that the recent price action was viewed as bullish with prices possibly exceeding the 20dma and 50dma resistance areas came to fruition today as the markets rallied to close near the highs of the session.   Let me explain why I thought it would not only rally but exceed the 50dma resistance area.  I've regurgitated the intraday 15 min SPX chart from yesterdays post to highlight the accumulation that was happening at our pre-defined level of support at 1653.  The volume by price (~3pts to a bar) on the left side showed the large amount of volume transacted at the 1653 area indicating that the professionals were active.   You will also note the amount of volume transacted at the highs between 1662.5 to 1665 was quite low.  This was the key to my prediction of a break of the highs. The 1665 area was the 50dma where prices backed off yesterday.  However, the low volume transacted at that level before prices pulled back into the close indicated the lack of supply coming into the market at those levels.  In a sense the market 'showed us its hand' through volume.  Therefore, giving all the buying that was going on at the 1653 it won't have taken much to overcome the overhead supply.  That is exactly what happened today right from the opening prices jumped higher to challenge the 50dma absorbing the remaining supply and continuing higher from there.

If we look at today's 6 month daily SPX chart you will notice that we are entering a price range of low volume.  Once again it will not take very much demand to continue higher and overcome and overhead supply.  Interesting enough the next level of resistance is the 1684.3 where coincidentally the amount of volume transacted in that area is relatively high.  I have to admit the volume by price or Volume Profile displays the price volume relationship in such a way making it very easy to pin point where the battle of supply and demand will happen.  Fun times ahead!

Thanks for reading.

No comments:

Post a Comment