SPY Average True Range, Rising Wedge, Volume and Fibs
Average True Range Analysis
Price action on SPY has been getting tighter and tighter as it comes deeper into this rising wedge structure. This is most clearly viewed on the Average True Range. I have taken the standard 14 period look back and times it by 7 to get the weekly look back and we can see clear divergence. A falling true range means that there is a tightening of volatility in the market which suggest a big move is pending. I prefer the ATR to other measures of volatility, such as the bollinger band width because simply, it is easier for me to visualize the ATR and the divergence thereof.
Taking a wider view on just the Average True Range and price action we can see that for the last 5 years when the weekly ATR is declining while price action is increasing we have a very strong move to the upside but then a very quick spill once the rising support is breached. As the chart also shews for the last 3 times each spill was worse than the one before.
Rising Wedge Analysis
Bitcoin and crypto is its own beast, but a quick look shows that rising wedges have been performing violently in a separate part of the broader market. In the first green instance the cloned trend line completely failed to act as support for price action and instead was resistance when price action basically teleported to the bottom of the wedge. On the current blue wedge we see that the cloned trend line has begun to act as some support. I personally think that it has a high chance of becoming a bear flag, but that still remains to be seen.
This diversion to look at bitcoin was to shore up my supposition that we will see some potential action at the cloned trend line of SPYs resistance. We cant tell yet if it will act as resistance or support just yet.
Fib and Volume Analysis
A look at the top chart shows there has been almost no volume participation in this uptrend since $390. That is about a 13% drop from here and if the wedge begins to perform as suspect it may that 13% will be gone rather quickly. Price action above the upper value area often goes away impulsively. From there I would look for retracements that align with fib retracements from the C19 spill and we see a lot of activity between the previous high at 339 down to the 0.618 area at $292.
Quite clearly I can't predict if/when support will give. I have an assumption that the 1.618 to 1.66 level will hold as resistance and we will see a lot of profit taking at that level. Which means SPY could walk sideways out of this rising wedge and have a slow roll over. That would be a minority position of mine. What we do see from the C19 dump is a very technical ABC correction. The ABC correction often sees Wave C go to a 1.618 extention of Wave A or greater. We see from the chart below that price action began to find support the 1.618 level and had a final stab down at the 2 level.
Very likely if this breaks down as I suppose we will see an ABC correction and point B will give people a last chance to get out before price proceeds downwards or will give shorter a technical place to deploy their strategies. Once we see a prospective B wave completing the time to do the fib extension will be upon us. And as I look for that ABC correction hopefully point C will line up with some of the target areas from the main chart, supported by volume nodes.
Not to layer t0o many suppositions on top of one another but I suspect we may see a bear flag/bwave around the potential channel support at the 1.414 level and we can take our ABC wave fib extension from there. The target will of course depend on how much upside that B wave shows.
The chart below shows the NQ1!/SPXUSD. That paring gives us the most price action we can get on the Nasdaq and S&P500 but it comes at the cost of not being able to do any volume analysis. In general NDX does what SPX does, just with more volatility and the chart shews that. So far the pair price action has not been able to get into the previous wedge structure that it was consolidating in. That suggest to me that people are distributing NDX holdings more than they are SPY holdings and we may see NDX go down quicker than SPY From there I would be watching for a potential higher timeframe bull trap. I expound on the NDX/SPY paring in my linked ideas which are a couple months old at this point.
Price action on SPY has been getting tighter and tighter as it comes deeper into this rising wedge structure. This is most clearly viewed on the Average True Range. I have taken the standard 14 period look back and times it by 7 to get the weekly look back and we can see clear divergence. A falling true range means that there is a tightening of volatility in the market which suggest a big move is pending. I prefer the ATR to other measures of volatility, such as the bollinger band width because simply, it is easier for me to visualize the ATR and the divergence thereof.
Taking a wider view on just the Average True Range and price action we can see that for the last 5 years when the weekly ATR is declining while price action is increasing we have a very strong move to the upside but then a very quick spill once the rising support is breached. As the chart also shews for the last 3 times each spill was worse than the one before.
Rising Wedge Analysis
Bitcoin and crypto is its own beast, but a quick look shows that rising wedges have been performing violently in a separate part of the broader market. In the first green instance the cloned trend line completely failed to act as support for price action and instead was resistance when price action basically teleported to the bottom of the wedge. On the current blue wedge we see that the cloned trend line has begun to act as some support. I personally think that it has a high chance of becoming a bear flag, but that still remains to be seen.
This diversion to look at bitcoin was to shore up my supposition that we will see some potential action at the cloned trend line of SPYs resistance. We cant tell yet if it will act as resistance or support just yet.
Fib and Volume Analysis
A look at the top chart shows there has been almost no volume participation in this uptrend since $390. That is about a 13% drop from here and if the wedge begins to perform as suspect it may that 13% will be gone rather quickly. Price action above the upper value area often goes away impulsively. From there I would look for retracements that align with fib retracements from the C19 spill and we see a lot of activity between the previous high at 339 down to the 0.618 area at $292.
Quite clearly I can't predict if/when support will give. I have an assumption that the 1.618 to 1.66 level will hold as resistance and we will see a lot of profit taking at that level. Which means SPY could walk sideways out of this rising wedge and have a slow roll over. That would be a minority position of mine. What we do see from the C19 dump is a very technical ABC correction. The ABC correction often sees Wave C go to a 1.618 extention of Wave A or greater. We see from the chart below that price action began to find support the 1.618 level and had a final stab down at the 2 level.
Very likely if this breaks down as I suppose we will see an ABC correction and point B will give people a last chance to get out before price proceeds downwards or will give shorter a technical place to deploy their strategies. Once we see a prospective B wave completing the time to do the fib extension will be upon us. And as I look for that ABC correction hopefully point C will line up with some of the target areas from the main chart, supported by volume nodes.
Not to layer t0o many suppositions on top of one another but I suspect we may see a bear flag/bwave around the potential channel support at the 1.414 level and we can take our ABC wave fib extension from there. The target will of course depend on how much upside that B wave shows.
The chart below shows the NQ1!/SPXUSD. That paring gives us the most price action we can get on the Nasdaq and S&P500 but it comes at the cost of not being able to do any volume analysis. In general NDX does what SPX does, just with more volatility and the chart shews that. So far the pair price action has not been able to get into the previous wedge structure that it was consolidating in. That suggest to me that people are distributing NDX holdings more than they are SPY holdings and we may see NDX go down quicker than SPY From there I would be watching for a potential higher timeframe bull trap. I expound on the NDX/SPY paring in my linked ideas which are a couple months old at this point.
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