Friday, April 24, 2009

Morning Market Briefing for April 24th

As this quickie chart from Big Charts illustrates, we're in a two-week range in the S&P 500 Index (SPY), with the value area (region of most concentrated volume transacted) squarely between 84 and 86. Note that today's pivot is 84.95. The big issue as we start trading today and attempt to test recent highs is whether we can build volume at the upper end of this range and eventually establish a new value region. If not, we'd expect a reversion into the value area above and that 84.95 pivot. Note that, as of my posting this, we're trading near R1, testing the 4/22 highs. How that test fares will set up the day's trade.


Lover Dad said...

What's market delta say about volume here at 11:05CDT? Is it hitting the bid or ask and showing reversion to dow 8000?

dgroch said...

The market is comprising in terms of price, volume and momentum. See pic I twittered Thursday.

The market ought to be thought of as a living organism. And like any organism it is always engaged in a process of expansion of contraction. Even particles - no matter how much you cool them - resist remaining absolutely stationary.

This is the magic of life.

Given a market only exists to fill orders, it is only "alive" when trade is being facilitated. It doesn't know whether trade will be facilitated at higher or lower prices, it must auction to new levels to discover this information about itself. In other words, markets are governed by a Blind Watchmaker analogous to the one that directs evolutionary processes.

If we accept this theory, we also believe this market cannot stay stationary forever. This rally has reignited some bullish sentiment, and it is good to see that there are now both optimists and pessimists. In my view this is a positive development, since it takes both a buyer and seller to make a market.

Anticipate the impending breakout and position yourself accordingly when it develops. Don't try to predict where the market ought to go.

dgroch said...

Above I meant to say that price, momentum and volume have been "compressing" not comprising.

That is, as the image shows price has been range bound and we're seeing a pattern of lower highs and higher lows in momentum. The funelling of momentum shows us that the auctioning process is becoming constrained by ever tighter bounds.