You got to know when to hold 'em, know when to fold 'em,Did you know that Kenny Rogers recorded 59 records in his illustrious career yet this is the only one I know. Shame on me. If all his lyrics related to trading like the The Gambler does he could write a book on trading (instead of children's books...yes he writes children's books).
Know when to walk away and know when to run.
The Gambler - Kenny Rogers
The market attracts all sorts of participants all using different strategies all with the same goal. To make money. Although I really don't care what methods people use or follow to participate in the market what is important is to determine the intentions of the masses. The only way I've found to clue in on their intentions is by looking at what has happened using price and volume.
The 60min PnF chart of the SPX below highlights the amount of volume at the all important 1684 level we have been writing about for weeks. It has the highest amount of volume for the area between 1684.8 to 1689.09 (the box size is 4.32). We also made the determination that this was a large supply area because of the distribution that occurred at these levels back in early August. Subsequently the market gapped above these levels last week prior to the FOMC meeting.
If we hone in on this chart using the 30 min PnF chart we can now see that 1687 area has the largest volume. This is important because it tells us were the battle of demand and supply will take place.
So what about their intentions. I will admit that determine the markets intentions is very very subjective but it the bias you need to enter the trade. I previously wrote about the gap above the supply area of 1684 which I believe was intentionally done to keep the huge amount of supply at this level at bay so that the market could continue to rally after the FOMC meeting announcement regarding QE giving the large institutional players a chance to distribute their holdings at all time highs. The volume on that day was the largest since the June sell off (which was accurately predicted as accumulation). If distribution is what is happening then a break of that 1684 area may trigger an increase of supply into the markets without the support of the large players that just sold their positions. That would trigger a hard and fast sell off just by looking at the amount of volume (supply) at that level.
Lets see how it plays out.
Thanks for reading.