Janet Yellen’s first public remarks since succeeding Ben Bernanke will be carefully scrutinized. This opens another round of technical analysis vs Fed talk. Will Yellen’s remarks be strong enough to negate or even shatter this bearish S&P 500 pattern?
Here’s a look at the most basic component of technical analysis: Trading volume.
In mid-January the S&P 500 hit a rough patch that actually caused some seriously red candles.
Two down days in particular (January 24 and February 3 – see black arrows) rattled the market as sellers flooded Wall Street and trading volume picked up.
In fact, January 24 trading volume was the highest since July 31 (with the exception of September and December triple witching).
To provide a visual, I’ve plotted the S&P 500 against NYSE trading volume (chart 1) and the SPDR S&P 500 ETF (NYSEArca: SPY) along with SPY shares traded (chart 2).
Both charts show the same pattern. High volume on down days, and low volume on up days.
Under normal circumstances this would suggest that investors are more eager to sell than to buy. However, a QE market doesn’t qualify for ‘normal circumstances status.’
We’ve seen this pattern fail many times since 2009. Will this time be different? Will Yellen’s reassuring remarks to Congress negate the bearish volume pattern?
A number of indicators suggest that stocks will make another trip to lower lows.
The second SPY chart shows the 20-day and 50-day SMA not far above current prices. Equivalent resistance for the S&P 500 is at 1,802 – 1,810, with 1810 being more important resistance.
Sustained trade above 1,810 would unlock the next up side target.
A more detailed S&P 500 forecast and the next key resistance is available here:
S&P 500 Forecast: Short-Term Gain vs Long-Term Pain
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.
