Good Sunday evening. The daily Dow had an outside reversal day, moving above Thursday's high and closing below its low. The volume however was the second lowest in more than a month and given that it was options expiration day that is especially significant. Whether there was a fall in supply or in or in demand we will try to determine in the remainder of this post. However I can tell you that I have seen action like this before and on more than one occasion it has indicated a significant drop in demand and has been the harbinger of a severe decline. Unfortunately that has not been 100%.Turning to the hourly SPY for our count. There is account of 7 across the 90 line Which gives us a downside range of 83-86. Continue bearish behavior back in that range could enlarge the count across the 86 line for example which could easily count to new lows.
Focusing on Friday on the 5 min pnf, we made a small new low for the move and while it might be shortening of the thrust what seems remarkable is the lack of a meaningful rally even though we are closing in on support. There is an absence of demand on the pnf where one would reasonably expect it.
Finally the intraday will come as close to giving us certainty on our tentative deductions about the lack of demand as we can get. The average upthrusts and puts in a very short term top on the 2nd bar of the day. On lower volume the average makes a spring at 93.09 and rallies sharply with almost all high end closes and no reactions. The volume however does not expand materially. Even on penetrating the green line the volume does not expand as much as one would expect and whatever demand there is is exhausted and overwhelmed by supply on the narrower equivolume reversal bar at 90.000. Some large players had their orders in at a nice even number. The average falls easily 12 points for the next 80 minutes until noon. For the rest of the day each rally ends lower than the previous rally, each is on tiny volume and each is sold as in "sell rallies." The last 35 minutes is particularly telling in this regard as each spike up is immediately sold in a reversal bar. The last bar in spite of its large volume cannot even make it to the green line. Clearly there is persistent resistance to any up ward move. So that is our picture, demand is lacking and there is resistance to an upward move. The line of least resistance is lower.
I have again added some pnf charts for your perusal. Remember stocks have tended to move in the opposite direction of the dollar index. Energy and agriculture are at old resistance areas where turnarounds or breakouts occur.
