Use This Reference Chart To Make Sense of Current SPX Range (SPY, DIA, IWM, VTI)

Corey Rosenbloom:  We’ve all been hearing conflicting analysis as to whether the market will “certainly” be going up or down in the near future, but the reality is that the market is caught in a “year to date” tug-of-war between buyers and sellers which has given us clear reference areas to monitor.

Let’s cut through all the smoke and focus on the clear reference areas – with regard to current “Value” – that define the current “Range” Stock Market Structure.

First, let’s look at the current chart:

In simplest terms, the market is pausing or consolidating in a large Rectangle Pattern at the moment.

The lower “Support” trendline rests at 1,260 while the upper “Resistance” trendline sits at 1,350.

The Midpoint of the Rectangle thus falls at the 1,310 area.

Those are the cleanest reference prices to assess current market structure.

Since February 2011, we neither have an Uptrend nor a Downtrend – the official structural definition is thus:

The market is in a short (to intermediate) term consolidation/pause (sideways trend) in the context of a clear intermediate (to long-term) rising uptrend (starting with March 2009).

If we strip all the indicators off the chart and look simply at price, we can envision the following reference:

In terms of Price/Auction Theory, the market treats 1,310 as a “Value” area of balance between buyers and sellers.

The market treats a move to 1,350/1,360 as “Over-Valued” and thus price “is rejected” at the upper boundary, resulting in a downward path towards, and then beneath, value.

Thus, the market treats a move down to 1,250/1,260 as “Under-Valued” and similarly is “rejected,” which results in an upward path back to – and then above – Value.

In this way, buyers and sellers (on a larger scale) are questing to find value, and their larger actions in aggregate help determine and reinforce these reference areas.

While these levels are not permanent, they are the current reference boundaries that the market has respected for the better part of 2011.

Once this grid itself – the Consolidation/Equilibrium – is rejected, then buyers and sellers will ‘quest’ higher or lower to establish a new equilibrium, which most likely will result in a Breakout or Breakaway trend move under 1,250 (targeting 1,200 or lower) or above 1,360 (targeting 1,400 or even 1,440).

Remember, breakouts from Equilibrium (really on any timeframe) tend to ignite “Feedback Loops” where one side of the market is squeezed (forced to cover) as the other side dominates (adds to existing positions or puts on new positions in the direction of the break).

Until we get that breakout, these are the upper, middle, and lower reference areas buyers and sellers (the ‘market’) have accepted in terms of current market structure.

Use these for short-term trading/planning decisions.

Related ETFs:  SPDR S&P 500 ETF (NYSE:SPY), SPDR Dow Jones Industrial Average ETF (NYSE:DIA), iShares Russell 2000 Index (NYSE:IWM), Vanguard Total Stock Market ETF (NYSE:VTI).

Written By Corey Rosenbloom, CMT From Afraid To Trade  

My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader, educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.

Leave a Reply

Your email address will not be published. Required fields are marked *