It is often said beauty is in the eye of the beholder, and for me, the daily chart of the YM E-mini is a chart of classical elegance, artistic in its construction, with the price action alone describing one of the most elegant and exquisite price formations over the last few weeks I have ever seen. It has much in common with the Ferrari 250 GTO.
Rare, classical in construction and perfect in design, the price action sweeps higher before slowing rolling over gently as the momentum of the upwards move gently ebbs away with the index reaching a pause in the longer term rally. This is truly a case where the price action quite literally speaks to you, with no need for any additional commentary. All that can be added to this picture perfect trend, is the volume profile which compliments and enhances this unique creation. And rather like the double rainbows often seen in nature following a heavy shower or rain, the arching price action of November, has mirrored its smaller cousin which was the pre-cursor to this sustained move higher.
So what are we to make of this classical formation, and perhaps more importantly, is this the precursor to the much awaited “big short”? And to answer the last part first, my analysis would suggest we are not there – yet. And there are several reasons.
First, the time of year is a big factor with year end bonuses tantalisingly close, and window dressing the name of the game, this is not the time to rock the boat. Second, whilst volumes have remained average throughout the last few weeks in the move higher, there is nothing here to suggest anything other than a continuation of the bullish trend. Third and last, we are yet to see a selling climax in any timeframe, and until we do, then equities look set to continue to move higher still. Remember the words of Jesse Livermore – prices are never too to buy and never too low to sell. Wise words indeed, and worth remembering as equities and indices continue to float higher.
What is clear from today’s minor move lower, duly reversed as the physical exchange opened, is that the bulls remain firmly in control and any move through the 17, 700 region, will then open the way for a further move high with the support platform below acting as the springboard.
By Anna Coulling
Hi Anna,
You are spot on. Price action is really bullish, retracements have been very shallow and every dip is being bought with both hands. But when we look at the volume, it has been really thin on the move up. Doesn’t it mean the move up is not sustainable due to low volume?
I am learning a lot from your analysis. Keep them coming 🙂
Hi James – yes this is often a characteristic of volume in this extended moves – the key will be if we see any narrow spread price action with high volume, or wide spread price action with low or average volume. Those will then be the signals of a possible pause and/or start of a selling climax. Markets always move more slowly in any up move than in a down move as the market makers take time to profit from their accumulation and subsequent distribution. In the down move they are moving the market fast to accumulate fast, before taking the market higher in a more measured way. Hope this helps – Anna
Hi Anna/James,
After reading your article and question yesterday, I wanted to point something out that I noticed.
I pulled up a long term chart – 10 year weekly – of the S&P 500. Within that chart I compared to XLE – the spdr energy fund. It seems there is a strong correlation there historically. XLE recently formed a V bottom rally just like the S&P, however it then reversed and is heading down through support – whereas the S&P has continued higher on low volume. Please take a look, as I fail to see a selling climax with XLE either. Let me know your thoughts please. Thanks!
Hi Jeff – first of all many apologies for the delay in replying, but for some reason your question was buried in the comments section, and not flagged, so apologies for not getting in touch before. Since your comment the markets have moved on, but if you would like me to take a look at any charts please just send over a screenshot and I would be happy to give you my thoughts in a post on the site which is always helpful for other visitors and traders. You may be interested to know that I will be publishing a follow up book to my Volume Price Analysis book and which will have many worked examples across all markets – something I have been planning to publish for some time as I have been asked to do this by many readers, and have finally found some time this year! Apologies once again and if you would like me to take a look, please just drop me a line with the chart and I would be happy to do this for you. Thanks once again and all best wishes – Anna
Thanks Anna. Your response has answered a lot of questions I had. Now it makes sense to me for the slow grind higher and not just for this market but for few other markets as well. Cheers.