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Saturday, April 18, 2009


Fascinating 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.

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