We highlighted the 1684.3 area of resistance and voilà a high of 1684.09 with a close of 1683.99. I know it seems like magic and the pin point accuracy sometimes even amazes me but its not magic its just good ole price and volume analysis. You really don't need to understand any more than this but a deep understand is still required. People think they understand the relationship between price and volume but they treat it like an indicator instead of the basic building blocks of the market and the tenets of supply and demand which is essential how the market operates.
So now that we are at resistance what now? Do we sell? Lets look at what the chart is telling us. Again lets look at the 6 month daily SPX chart below which highlights both the large amount of aggregate volume at the current area of resistance (1684.3) and today's increase in volume with price closing essentially at the highs for the day. The current price level interesting enough is where we broke down after a period of distribution back in early August that we wrote about here. By identifying this as a previous area of distribution we know that at these levels large players unloaded their shares to the retailers (I think this is called holding the bag) only for the retailers to see a 50-60 point drop in the market. Now imagine if you are holding a losing position that is coming back to break even after a month of holding it (because you didn't have stop loss and decided to rely on hope as your trading strategy). What would you do or should I say the typical retail investor do? That's right they will sell into it and that is why we have the overhead resistance. That is also why we need an increase in volume to overcome that potential influx of supply at resistance in order to break through this level. We did take our first steps into breaking that resistance today with the increase in volume and the close at the highs indicating demand is present but the bulls are far from claiming victory at this level. The test will come tomorrow and/or the day after.
If we zoom in on the 30 min SPX chart will get an even better picture of where the battle of supply and demand is and as one would expect its at the current resistance area of 1684.3. It does however, look like an intraday double top is forming as prices hit resistance pulled back and rallied back to resistance at the close. If you were long then tomorrow is going to be a critical day to decide to stay or go. If you are looking to initiate a short at this level then you will be looking for signs that supply is enter the market. I'm leaning towards the latter.
Thanks for reading.