Charts and Commentary
Sorry for the delay this morning. Our server in Texas maxed out at capacity and we had to delete some files in order to make room for today's update.
I was late in posting the update, so I feel that I "owe you" a high-value, free member update.
Today's update ...
Market technicians have long respected the relationship between price and volume as being important relative to market support in a trend ... or the lack thereof.
The concept is a simple "Price vs. Demand" economic principle.
The theory and concept goes this way ...
- As prices move higher, if fewer and fewer people buy at each rise, then the market will run out of buyers when the price finally gets too high, and then the prices will fall to a level where buyers will appear.
- If prices are falling and volume is increasing, then stock owners are rushing to the exits in order to get the best price before anyone else ... and before prices fall further.
That brings us to the SPY which is an ETF for the S&P 500 Index.
Note the classical "Price vs. Demand" behavior on this chart.
In early May, the SPY rose higher as the volume kept falling lower. The SPY ran out of buyers at those prices, and the prices began to fall because there were no buyers.
From May to mid June, volume increased as investors sold to get the best price and to avoid losses. The volume shows that as prices dropped, more buyer sold until volume peaked and there were no more buyers willing to sell at the price in mid June.
After the market exhausted itself of the sellers, investors stepped in and started buying. Since June's low, the SPY has rallied to over 130 .... but, note what has happened to volume during that time.
Volume has consistently trended down, which means that every time the SPY went higher in price, fewer buyers showed an interest and willingness to buy.
How much further does the SPY's price have to go for the market to run out of buyers this time?
Some huge, fundamental market change would have to occur for volume to rise as prices rise now. Something in the order of Bernanke doing something wonderful about interest rates, or like oil falling by $20 per barrel. Without that kind of positive stimulus, it is a matter of time before we won't have enough buyers to keep the market rising.
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