Market Action: Rising Wedge to Resistance

As we showed on Thursday , this entire rally has been one huge rising wedge, and there have been a number of different rising wedges within this huge rising wedge. Here's a 15-minute chart of the SPX rising wedge since late March:


The circled area on the right is the rising wedge that formed over the last 3 days. Here's a close-up chart of that wedge:



This chart uses the SPY ETF, since that's the SPX proxy we watch during the day so we can see buy/sell action and immediate price changes. To us, this was a clearly defined wedge, and today's action indicated that there were others watching this wedge.


This one-minute chart shows today's intra-day action:


The first couple of hours were a battle between buyers and sellers, with up volume and down volume taking turns taking over the lead, TRIN fairly high (indicating more volume going to the losers), both positive and negative TICK readings, and the SPY vacillating between positive and negative territory.

The next 3 hours looked like a strong trending day up, with up volume vs. down volume steadily increasing and TICK solidly positive almost without any negative TICK readings. That's the type of action you see on the huge several hundred point rally days. It looked unstoppable. However, the declining TICK readings formed a negative divergence with the rising market, portending a change.

Then the SPX hit the 875 resistance area (around 87.6 on SPY), which has been cited by many technical analysts as a target for this initial move of the rally, as that's where the February high was (also, late January high was 877.86). 875 also was where the upper trend line was on the first chart's rising wedge. Seemingly out of nowhere, a huge amount of selling materialized, rejecting the SPX and sending it back to the lower trend line of the rising wedge at around 870. The significant negative TICK action as the SPX reached 875 contrasted sharply with the previous 3 hours. It seemed clear that there were lots of people watching the 875 level as the place to sell longs or short the market.

Over the next hour, a fascinating battle between buyers and sellers ensued over the end of day direction, with sizable TICK spikes in both directions. The buyers tried to break the market out to new highs over 875 resistance while the sellers tried to break the market down from the rising wedge lower trend line. There were no fewer than 5 distinct attempts at taking out 875 on noticeably increased volume, but the resistance proved too strong.

Finally, in the last few minutes, the rising wedge lower trend line broke down and the market sold off to end the day without too much net change. The sellers ended up winning this end-of-day battle. If this battle marked a changing of the guard for at least the short term, there should be more selling action next week.

With the Dow ending up only 6 points, on paper it looked like a boring options expiration day, but a closer look at the intra-day action revealed one of the more interesting trading days we've seen.

Comments

[dwfm20:]

thanks for this explanation of the days trading - will be an interesting week to see which side prevails. The one aspect which makes me skeptical of a large correction is that so many are expecting it.

Apr 19 03:14 PM

[RiskReturnO...:]

We will know in a few hours ... watch Shanghai and Hang Seng for leading indicators for trading next week in SPY ... we need to global growth story to continue; otherwise, I'm not sure US economic and/or earnings new will be enough to carry market higher.

Apr 19 07:07 PM

[jhartz:]

This is not the "tug of war" some posters are trying to make it seem. First, there are persistent indications of systemic decay in our financial, housing, and business sectors.

Did anything concrete happen in the past month to change that situation? No! Clever accounting, and hidden losses can only serve to dupe the unknowing into climbing back onto a sinking boat.

Never has the phrase 'Throwing good money after bad' held truer than at this time in our economic history.

Trying to inject a little optimism into our situation isn't necessarily a bad thing. Cooking the books whil our regulatory agencies turn a blind eye and a deaf ear is quite another.

The best way for us to turn into a third wold nation is to follow the current economic practices that our government is trying to get us to sit still for.

Apr 19 08:32 PM

[Alan Young:]

Fascinating article--thanks for the insight into intraday trading dynamics.

Apr 19 11:09 PM

[Paul_L:]

Great article and thank you.

Apr 20 01:22 AM

[squark62:]

very concise and insightful information w/o over-doing chart analysis!

Apr 20 11:01 AM