Sunday, September 15, 2013

The Devil is in the Details

Did you know that the original phrase was 'God is in the detail'?  It just doesn't sound as catchy.  Today we are going to look at the details at the lower time frames as those details tend to manifest themselves in the higher time frames.  I like to look at the both the daily and intraday time frames as price approaches our key levels of support and resistance to try to understand what price and volume is 'hiding' in the lower time frames. You will also notice the principles are all the same no matter what the time frame is.

First lets look at the SPX daily chart and we can see that since we hit the 1684.3 resistance area that price hasn't really progressed either way.  However, volume has been declining and the price range for the past couple of bars has shrunk considerable.  That is what I would call consolidation.  But the question remains is it consolidating in a bullish manner (accumulation) or in a bearing manner (distribution). The fact is that the large professional traders are not just chillin' out deciding to take it easy for the past couple of days.  They are either interested in moving prices higher or getting out and allowing prices to drop.  As the title suggests lets see what devil we can find in the details.
Below is the 15min chart of the SPX for the past 3 trading sessions.  I've highlighted the break out bar which is the bar that broke above our 1684.3 resistance area on increased volume (funny how does that).  That is our first clue in our chart sleuthing.  The second is the various tests that occurred at the same level of our break out bar.  Three times (as in the Holy Trinity) price dropped to this level only to recover.  You will notice that price closed near the top end of its trading range on each of those test bars.  That would signal that demand was present and that my friends is bullish.  We have to remember that the current price area we are in is also the break down area we saw back in early August which we identified as distribution so there are a lot of bag holders that may be itching to get out. However, the bulls are making a grand effort to push above this overhead supply and a jump above 1690 (Thursday's high) would be very bullish for a continued move higher. It might give the bag holders more incentive to hold on to those breakeven positions for a possible profit!  Wouldn't that be just dandy?  Of course a close below our break out level (1684.3) on increased volume would favor a bearish move.  Now that we completed our exorcism of the markets lets watch what happens in the days to come as price rarely stays around these key levels for too long before a decent move occurs. 

Thanks for reading. 

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