First, notice that the lows from Wednesday provided a "zone of resistance" for any upward movement in yesterday's market.
Yesterday, there were five moves through the EMAs, none of which gained any serious momentum beyond the EMAs. That tells you the market is very bearish right now.
Note particularly the last rally which printed some very strong bars on rising volume. If any rally was going to get some steam to move higher, it was this one. But there was no move higher, meaning the bears were in control.
Prices are now in the "Fib zone" - the area between the 38.2% and 61.8% Fibonacci retracement where prices typically run into some resistance.
The technical chart tells us that prices have broken an uptrend (a) and are now below all the EMAs (b). However, a lot of money flowed into the market over the last rally (c and d). The question now is will that money start to leave or will we simply see a little profit taking with money remaining in the market? The best way to tell that is is we start to see some very strong bars printed -- bars with long bodies. Also note the MACD has given a sell signal (e), meaning that at best, we're moving into a period of consolidation.
Note the same analysis as the SPYs applies to the QQQQs.
The IWMs are technically a bit weaker because they didn't see as large an influx of money (the A/D and CMF lines).
4 comments:
"a lot of money flowed into the market over the last rally (c and d). The question now is will that money start to leave or will we simply see a little profit taking with money remaining in the market"
No new money flowed into the market in the recent rally and no money on net will leave in any selloff. Unless there is an IPO or secondary, whenever someone buys a stock, someone else has to sell it to them. Whenever someone sells a stock, someone has to buy it from them. The price of a stock or the stock market as a whole goes up or down depending on the demand for the stock or stocks in general.
What the indicators are measuring is the sheer volume of money moving in and out of the market.
For example, suppose on Monday $100 was available for trading, but on Tuesday $200 was available. The increase would show a marked uptick in buying activity, driving up prices. That's what the A/D and CMF lines are trying to measure.
The entire rally was a rising wedge on declining volume. The biggest volume days were the days with the biggest declines ( 7/16, 7/22, and 8/11). The up day on 8/9 was the third lowest volume day of the year on the NYSE, if i remember correctly. But such distribution/accumulation has meant nothing in the entire rally from March 2009. The accumulation has been extremely poor the entire time. All the biggest volume days have been on big declines, and the lowest volume days have been on up days. Most up days during this entire rally have been on very low volume.
Anon -
The summer -- especially August -- typically has lower volume.
In addition, the A/D line rose from the beginning of February 2009 - October 2009, moved sideways from September to February 2010 and the rose again with the late spring rally.
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