Buying/Selling Pressure At Key Levels

Observing Buying And Selling Pressure At Key Market Levels
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By Brett Steenbarger, TraderFeed | 4 March 2009

The most recent post emphasized the relevance of tracking expansions and contractions of relative volume as markets move to and away from value. Equally important is tracking buying and selling pressure as markets move toward or away from key levels of support or resistance. After reversing midday and moving to an important resistance level at the market's opening range, the ES futures declined for the remainder of the afternoon with multiple NYSE TICK readings below -1000.

As I stressed earlier, such weak readings are only possible when institutions are selling baskets of stocks, causing a large number of issues to trade on downticks simultaneously. What this action tells us is that market participants are rejecting the level of value at the day's opening range, which is also a level of value that is within the prior day's range. The rejection of this level after a market bounce at the very least places us within a range environment and a likely retracement of the range, given the strong selling pressure.

The lesson is that it's not just whether a market rejects a level of value but how it rejects it that provides important clues to the near-term price path. When markets reject a level on solid relative volume and heavy selling pressure, it means that the large participants who move markets are perceiving the level as a selling opportunity: a clear sign that they see "true" value as lower. Until lower prices bring significant buying interest— something that didn't happen late in the afternoon, given the weak bounces in TICK (not one reached the +800 threshold of significance representing a two standard deviation buying event)— the market will probe lower levels of value in search of equilibrium.

Last week's indicator review concluded that "the peaks in the Cumulative Demand/Supply index have occurred at successively lower price highs; each rally in this bear market pgase has so far failed to surmount the one previous. As long as that is the case, and especially as long as we're seeing weakening Cumulative TICK and expanding new lows, it is premature to be pounding the table on the long side." That turned out to be the proper trading stance, as the breadth of weakness noted in that review continued.

The Cumulative Demand/Supply Index stalled out in moderately oversold territory over the week; interestingly, despite the recent weakness, it is not at the oversold levels that have typified recent intermediate term market lows. New 20-day lows continued to swamp new highs across the NYSE, NASDAQ, and ASE. Note, however, that new lows remained above the levels registered the prior week, even though stocks closed at their bear lows Friday. This non-confirmation was also evident in the Cumulative NYSE TICK. We will need to see continued weakness in these measures early in the week or a rally from oversold levels could result from bargain hunting and short covering.


Click Here, or on the image, to see a larger, undistorted image.

Finally, take a look at the chart above, which is one of the excellent offerings of the Decision Point site. It displays the advance-decline line specific to common stocks traded only on the NYSE. We can see that the line is right at its bear lows, having weakened significantly over the past two weeks.

Indeed, we have seen declining stocks outnumber advancing ones for these common stocks for nine of the past ten trading sessions. That represents broad and persistent market weakness. We need to see signs of greater buying interest and an ability to sustain a move above near-term resistance in the 785-790 area in the S&P 500 Index (ES) futures to begin the process of putting in a durable intermediate-term bottom.


  M O R E. . .


Normxxx    
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