Interpreting Price Behavior Rationally (Part 1)

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Hybrid Technical Analysis using Elliott Wave, Candlesticks, and The Volume Profile

Not that it matters, but I've interpreted today's bounce as a double-zigzag wave structure, which means precisely that: IT WAS A BOUNCE!  But a double zigzag, according to the Elliott Wave Theory (EWT) could evolve into a 'triple' (roughly 10 percent of the time).  In fact, the late-January pullback did unfold as a triple, which helped me pinpoint the low last Friday afternoon with pretty good precision, leading to a brisk reversal.  That being said, I've also learned over the years not to put all my eggs in one basket.  In other words, price is subject to supply and demand, not to my own interpretation of the twists and turns.  So, instead of charting the wave structure, I'd rather you all learn a much more rational way to read the price behavior.

Here's the $SPY's daily candlestick chart featuring the 2020 developing auction (volume profile).  Thursday's session opened with a profit-taking mindset on the heels of a gap up.  Right from the get-go, the strong open was faded all the way down to the VAH (the red line), filling the gap along the way.  A combination of opportunistic buying and short covering drove price back up to close it just above the opening price ahead of Friday's NFP.  A victory for the bulls! 

Friday's open was right in line with yesterday's low, making the 2020 VAH (currently ~332.77) the most pivotal price level for all immediate intents and purposes.  Traders once again bought the dip at this support level upon the release of the day's last economic data point.  However, these buyers failed to muster enough momentum to reach Thursday's green candle body.  Yes, the chart shows otherwise due to some issue with ThinkorSwim, but today's high was only 333.62, just 8 cents below the weekly VPOC of 333.70.  Hence, this bounce is to be deemed a mere mean-reversion move to the weekly VPOC (i.e., the largest volume bar within the weekly auction) that gave short-term traders a chance to exit ahead of an uncertain, coronavirus-infected weekend.  In short, as long as 333.70 remains intact, the short-term trend is down, and the downside objective is likely the 20-sma.

As for today's close, an undecided market ($SPY) will likely pause around 333 (more likely the 332.95 to 332.77 range).  Should Monday's session get off to a weak start, a drop below the 2020 VAH would confirm the short-term direction.

Reference $SPY chart:

Trade well (and rationally),


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