Let’s start off the week’s analysis with a look at this chart:
This is a little hard to decipher, so let’s just step through it.
The chart on the right with all the numbers is a variation of a market profile chart. It shows us 30 minute time price opportunities (TPO) and stacks them.
And keep in mind, this may all seem like voodoo but it’s just another language. We could do this with candlestick analysis as well.
This allows us to see where the most trade facilitation has been going on.
In a “normal” market, if there ever is such a thing… the areas with the most trade facilitation act as a magnet and low trade facilitation represents rejection.
Peaks = magnets, valleys = rejection.
What happened on friday was pretty amazing.
The S&P 500 gapped down into the peak right around 2030. And to be fair, I’ve been watching that level as my over/under price.
It made sense for the market to sell off lower as we had an unfilled gap right around 2048.
When I talk about watching price action, it comes down to this… whether I think the current price is being accepted or rejected.
The true bearish scenario would have been acceptance at these levels as more willing sellers come in, and then you have a 2-day island top that formed and would most likely lead to lower prices.
Yet we didn’t see acceptance, we saw aggressive rejection and an auction back up to 2050.
The next thing to look at is the “Shelf” at 2050. This is where a valley turns into a peak really quickly.
Normally a shelf will act as a level of either support or resistance, and we didn’t really see that happen.
And then finally we saw a continued auction into the end of the week. Orders jammed higher
If you want a less nuanced term, the market had a bullish engulfing candlestick on friday:
Simply put, the market strength should continue into this week.
Unless we see price action otherwise, we need to assume that the same kind of motivated buyers who came in on Friday will still be around.