Volume and Price Analysis and What it Means

Doing a volume and price analysis on the SPY ETF today one can see that the SPY has downward momentum, but little if any downward conviction.  Today the SPY ETF declined with a total volume of about 240 million shares which is a substantial less then recent important price swing lows of the last several weeks.

In fact today the SPY broke through the 11/1/2011 price swing low which had 415 million shares.  This is a 42% shrinkage in volume on the break of the previous important swing low.  So it says to me in the short term the SPY ETF is likely to bounce back up again to test new resistance at the 121.36 level.

I think it important to also consider today’s SPY volume in the context of the SPY volume phase that started in late July 2011 and early August 2011.  It is an important comparison if one is open to the possibility that the SPY could be starting another major down leg.

If a new major down leg is going to occur from this point forward, then we would want to start to see a gradual and then dramatic increase in downward volumes similar or greater to that which occurred in the SPY in the late July and August 2011 time frame.

The Volume and Price Trend to Reveal the Next Market Phase

The volume and price trend in the SPY ETF if watched carefully should reveal whether or not we are on the cusp of a major new downward price trend.  One should observe is the price and volume trend starts to mimic the August 2011 decline in terms of speed and volume.

If so, then it would start to create favorable odds that the next major down leg in the stock market has begun.

The alternative is that the stock market finds support again after the recent decline and then initiates a new up leg based off of the huge rally that occurred in the early October 2011 time frame.

Patience with the Volume and Price Trend is Key

Patience will be key in observing the new volume and price trend.  Sometimes market declines have a tendency to start slow with lighter volumes and then move into an accelerated phase.  So while today’s decline volume was light, it could simply be the first step of a multi step downward price and volume trend.

SPY Price Analysis for Rest of Week

The rest of this week the SPY price is likely first to initiate some type of gap fill or counter trend rally to the upside.  Given that this is Thanksgiving week holiday volumes are likely to remain light into end of week.  This is another important consideration when we analyze the price and volume today.  Given that we have a holiday week, one should anticipate a possible delay in the real conviction of the market until the following week.

Importantly the following week (the first 3 days) will market the closing price work which completes the monthly November 2011 price candlestick.  This is going to be a very important monthly price closing and will speak volumes about the December price action.

If the market is indeed in a new heavy downside bias phase then I think either very late this week or very early beginning next week would be the ideal shorting opportunity in the SPY.

Posted in Technical Analysis
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2 comments on “Volume and Price Analysis and What it Means
  1. ANNE says:

    like your new look

  2. Tom Tom says:

    Thank you. A bit plain but the other format was too messy and too much scrolling.

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