Sunday, September 8, 2013

Support or Resistance

You know my methods, Watson. Sherlock Holmes
I've always wondered how well Sherlock Holmes would have traded the markets.  The master of logical thinking along with his uncanny ability solving the most impossible of cases would surely have mastered the markets.  I think so.  I believe that logic can solve this market which appears otherwise so random.  I don't believe that the markets are random because I don't believe human emotion is random just like a don't believe the human composition of atoms and molecules is random.   Order can be found.  

Okay enough of my philosophical ramblings.  The behavior of the market this week was actually quite interesting as we bounced off of support back to resistance at 1653.  The interesting part was how price closed right at resistance at 1653 on the Sept 4th on high volume.  The next day (Sept 5th) we see price advance to the 20dma before backing off and closing above 1653.  The low for that day was 1653.  Interesting.   Friday's (Sept 6th) action was driven by the job's report so we see how people reacted to those numbers with a large price range with price hitting the 50dma then closing slightly below the 20dma.  I have basically stated the obvious but still the question remains is the recent action bullish or bearish?

To answer that question I like to look at the 15 min intraday SPX candlestick chart plotting the 1653 price level and look at what both price and volume is doing at this key inflection point.  The first thing to note is that volume at the 1653 was quite large in comparison which isn't surprising since it is at the inflection points where the battle of supply and demand happens.  There is also a transfer of ownership that typically happens at these levels.  So just like Sherlock would have done we look at the facts and come to a conclusion.  The fact is that price on the daily bars are bullish since we are closing near the top of the price ranges and volume is increasing at the 1653 level which I'm viewing as bullish since on Friday the bears had a chance to take the  market down but recovered indicating demand was present.  However, I am fully aware of the 20dma and 50dma currently acting as resistance.  I'm going out on a limb believing that we might just break those levels in the days to come.  Let see what happens. 

Thanks for reading. 

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