The S&P 500 Index has been chugging along to the upside since hitting its most recent low of 1,042 on June 8. At the time, that low was exactly at the lower two-standard-deviation Bollinger band, possibly indicative of an oversold condition. As of Tuesday’s close, we were trading in the middle of these bands.
Since the June 8 low, the broad market ETFs such as the SPY and the DIA have been moving higher on lower and lower volume, which could mean a lack of conviction on the part of market participants. That weakness is maybe beginning to rear its ugly head in the past two days’ price action.
When the SPX began moving lower back on April 26, the price of the index shifted lower during the last 30 minutes of the trading day, accelerating the moves south from early in the day and confirming direction. From June 8 until Monday, the prominent market action was to move higher in the last 30 minutes of the day, leading the market to a net gain in that period. But that trend may be changing yet again and the reluctance of traders to hold positions overnight could be one cause of this.
I remember as a market maker and specialist, one of the main ways (and really the only one way) I had for analyzing short-term market direction was to “read the tape” and watch order flow. In other words, I would look at price action and make determinations as to whether to be long or short delta (direction) at different moments during the day and overnight. While this is not foolproof, it really makes sense when you think about it in the most basic of terms. (more…)
