So let's begin our exercise. The close Friday was interesting and we will get to it. The daily Dow had some selling the first week in May followed by a low volume decline to 8200. Volume did not pick up on the rally back to 8600 and then fell again on the decline to 8200 after a volume surge at the top. We closed this week in an upthrust position. I must point out that with the exception of the high volume at the top of this range, this market has done nothing bearish! We could not even decline into the previous range. There have been no high volume large range price breaks on the daily chart. In fact the 60 minute $spx pnf chart which has been one of our best prognosticators, looks very strong having rallied away from a hinge at 900. The count on this chart does not give much cause, sadly for the bulls.
The hourly chart of the SPY shows Friday to have been lackluster until the close. The last 5 minutes of every month has unusually high volume especially in the futures and this month it caused a price explosion. Massive numbers of stops were triggered and we will discuss it shortly. However on this chart please note that it closed well below the resistance line so there was huge selling into the stop explosion. The trading range looks like it will continue.
Instead of looking at the 5 min SPY today I wanted to look at the 5 minute emini futures. As I have mentioned frequently the futures are running the stocks and this at its worst, which we saw Friday, resembles off track betting determining the horse race. Turning to the chart I have labelled certain bars 1,2,3 and they are heavy selling. 1 and 3 come in at about the same price, so we have reason to believe it was the same group that was for whatever reason liquidating longs or getting short. With all of this heavy selling as a preamble, I believe that the move to trigger short covering was a way of either selling out a long position for whatever reason or getting short. Someone had alot to sell and they did so. If you look at the 5 minute SPY chart, I have labelled a.b.c where it was supported around the previous day's close. Clearly someone did not want it to go down on the day but wanted to sell more higher. Please note that the final bar on the Spy closed in the lower half of its range. Supply grater than demand.
To sum up, I believe we are seeing distribution. This does not mean we cannot go higher or we must go lower. It means large amounts of stock are being pressed on the market, but not enough yet to break support. If "they" can sell higher they will gladly.
