subtle clues to detect if a change in trend is coming …

Today was relatively quiet with slow, boring price movements (which I like to see).  With that said, the movement was generally bearish in nature.  We opened up nicely and more or less spent the rest of the day falling.  We did hold nicely above the low from yesterday, but the lack of volume on the upside shows little bullish conviction.  It is understandable that investors are cautious to enter the market, but if the bulls don’t take the ball quickly … the bears will, and we can expect another down leg.

As I mentioned yesterday, I was hopeful we would get a bounce today and move up to test the 50 day moving average, but today’s action gives me little confidence in this scenario.  Bulls need to act tomorrow.

SPY 30 minute chart – showing moving average resistance and volume flaws

For today’s technical analysis ‘lesson’, I pulled up the 30 minute SPY chart to try and get a gauge of the market in the short term.

Each bar represents 30 minutes of market time, roughly 8 trading days of time.

What we see is obviously a fairly consistent downtrend, but I wanted to point your attention to a few nuances that give us a clue as to the market’s direction.

1) notice the white boxes I have used to circle various price points on the chart.  Notice how each time price got close to the 20 period moving average (green line) that the price pushes off of the line and continues lower.  this is an important short term clue showing that traders are expecting more downside and using the moving average to add to their short positions.

2) Now for a slightly bullish turn of events in today’s price action, notice near the right side of the chart, highlighted in the green box, how price here broke above the green line and is now using this moving average (green, 20 period) as support … bouncing off of it and moving up at each touch).  This is a very subtle sign that maybe the short term tide has shifted and buyers are stepping in, or at the very least … sellers are getting less aggressive, no longer feeding their short positions.  What once was resistance is now acting as support.

The longer term (yellow line) moving average (50 period) is now acting as resistance which as you see had not been approached since the trend turned aggressively down.  So, the trend is still down, but seeing a previous moving average change from resistance to support shows a gradual change in trend might be occurring.

3) At the bottom of the chart, I have also marked various points on the volume chart, which tell a story in their own right.  In fact, I generally look to volume to find clues of future price movement just as much as changes in price.  So what do we see, not a lot of good unfortunately.  Generally you want to see the green bars (up bars) showing more volume that the red (down) bars.  And if you look closely, what we clearly see is that the downward movements show higher volume (taller bars), and the up movements are much more condensed.  This implies that there isn’t a lot of buying going on, and the expectation that a rise in price is going to occur is minimal.

One important test occurred today which was a bearish victory.  If you look at the far right of the volume chart, you will notice how the volume dried up this afternoon as price was sitting just below the 50 period moving average (yellow line).  This was the bulls chance to take charge.  The dry up in volume signified that the bears had stopped selling and expected the price to rise (they were no longer fighting the rise in price, but gave up).  Yet … the bulls didn’t take action, and after a few bars, the bears finally jumped in aggressively to take back most of the gains of the day.

What does this all mean?  The bears are slowing their assault, but the bulls are not yet buying and if they don’t start very quickly … they will once again lose the battle and more downside will be coming.  Tomorrow will be important as the time to act is upon the bulls, if they want it … they can take it.

These subtle clues are in the charts ALL the time … giving slight insight into the possible future direction of the market.  It is too early to get involved in this upward movement as it show little encouragement, but at least we have some direction going in to tomorrow.