Yesterday i said that we could not punch through resistance without a spurt of volume and that once we did so, if we did so, that supply would overwhelm the demand. Both occurred this morning. At 8:45 we ran through the resistance at @838 on a volume of 70,000 contracts, doing a total of 131,000 in the first 3 bars or 15 minutes. We corrected for 1 bar and a volume of 42,000 and then on the next 4 bars with higher closes the total volume reached 181,000 contracts. The long bar with 76,000 contracts looks climactic and the angle and speed of the advance make us suspect that distribution and filling up of buyers who see and jump in when such action is occurring. We react for 2 bars and 62,000 contracts, more than the previous reaction but do not give up much ground in terms of price. Demand remains high on the reaction, filling up those buyers who wait for the reaction to buy. The next wave up generates only 33,000 contracts, indicating demand is drying up and the demand on this up wave is less than the previous waves supply. The market falls on 24,000 contracts almost equal to the demand. We now rally on 20,000 contracts and fail to make a new high and in fact do not rally back 50% of the loss of the previous bar. Demand has clearly been exhausted by this sharp up move and we now fall beneath the zone of distribution(lower limit is 844.25.) confirming that demand is not sufficient to hold prices up. A weak rally begins 9:50 and is restrained by the point where supply first overcame demand 847.50 in a nice reversal bar at 10:05.
Prices are now held in arrange bordered by the resistance now support at 838.50 and the bottom of the zone of distribution 844.25-.75. When prices fall beneath the support at 838 and subsequently close there, the weakness is confirmed.
The daily chart of the SPY shows a small bar with a low end close and the lowest volume in 2 weeks. This bar too indicates supply overcame a diminished demand. The resistance at 85.5 checked the advance and the close back in our small trading range of last creates a small upthrust.
Tomorrow is the FOMC meeting I believe and we will see ...
This chart however looks more bearish every day.
