The market indexes (S&P 500, DJI, Nasdaq 100, NYSE Composite and Russell 2000) dropped to the bottom one of the 1-month side-way corridor - see the short-term support line on the chart below. The question many traders are asking is whether we will have a bounce up from this support or the market will dive in a correction.
On the chart below you see the S&P 500 index declined to its short-term support line for the second time. Current decline to this level differs from the one we had in March. During the March's decline, we had strong volume surges on March 17 and March 21, 2017. In addition, the decline on March 21, 2017 was very strong. Current slide to the support level went on low volume and we did not witnessed any strong declines. On March 21st, we saw a strong volume surge and we told that this increase in volume was caused by the Bulls jumping in and starting to buy from the Bears. These Bulls stopped the decline in March and they pushed the S&P 500 up. Now, the Bulls are waiting. Current decline did not attracted the Bulls into buying. In opposite, we see a decline in average volume. This tellsus that the Bulls are cautious.
Right now the S&P 500 is traded on low volume and low volatility:
- The index declines and this tells us that the Bears are stronger than the Bulls.
- Low volatility and small declines reveals us that the balance between Bullish and Bearish pressure is very small, otherwise we would have much stronger declines.
- Low volume points that both Bulls and Bears are weak.
The other interesting points worth mentioning is that when we check intraday S&P 500 volume, we will see that the volume to the price down-side is higher than the volume to the price up-side. Basically, it tells us that the Bears are stronger. The intraday Bulls have to put stronger pressure (create stronger volume) to to fight the Bears during a decline and to make price to bounce up. At the same time, the intraday Bears have no trouble (no increase in volume) reversing price down.
Overall, based on volume behavior, we may say that the odds are on the side of the Bears for the coming week. However, by saying that we do not state that the market (S&P 500) will dive into 10% correction. We have very low vitality, which is a sign of strong and confident Bulls and further decline may attract them and we may see a reversal up.
The S&P 500 will decline until we see a strong increase in volume which will signal that mid- and long-term Bulls are starting to buy. Big volume surge would mean that the new Bulls are buying in big volumes and they have enough buying power to cause a reversal up. Currently the the S&P 500 average daily volume is around 1.7 B shares. By looking at the recent history, should we see a volume surge when the S&P 500 daily volume hit over 2.5 B shares we should consider it a a sign of "Big money" coming to the market and we should expect a reversal up.
Chart #6: S&P 500 index volume chart from https://www.marketvolume.com/sbv/tutorial.asp
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.