In tonight’s blog, we conclude the S&P analysis.

Friday’s price action and volume have all the earmarks of a top. Figure 1 shows the price action from the Jan 6 high. You’ll notice that on Thursday we had a reversal bar with normal range (just) and normal volume. We also had a Neutral Day closing in the upper extreme (Figure 2). Neutral Day are possible reversal days i.e. I’d be looking for a move up.

On Thursday we had a higher high and higher low BUT..

  1. Market Delta shows that we had selling volume (Figure 3).
  2. The range and volume were below normal. Coupled with the higher high and higher low, this is usually bearish. Still Monday was a public holiday and that may have accounted for Friday’s lack of activity.

The failure to move higher with mean range and volume tonight - given the Neutral Day and Reversal Day on Thursday - would be bearish.
Today we shall probably see an open around 804 to 802. If so, this would be a further indication that February 13 marked a high. If we can accept below 797 basis March, we should challenge the November 8 2008 lows at 741.

The open-gap will allow us to enter the market using the ‘open-gap’ rule. My stops would be above 841 based on the 50% rule in a bear pattern (Figure 4). I’d be looking to exit the first third at around 751 (basis cash). I’d move my stop on the second third to break-even when I exit the first third; I’d leave the initial stop unchanged for the last third.

Tomorrow I’ll review tonight’s price action and answer Baz’s question on trendlines.

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Figure 1 S&P 5-day Swing

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Figure 2 Neutral Day

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Figure 3 Market Delta Volume

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Figure 4 Bearish Composite Profile

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