While the bounce we’ve had in the market this week hasn’t been particularly impressive, we are however at least seeing a change in its character. Notice in the following 30 minute chart of the S&P 500 e-mini futures how the price action at the end of the day has now begun to show signs of late day accumulation as opposed to the late day distribution that occurred during the prior week.
One of the messages we can infer from buying at the end of the day is that market participants are willing to assume overnight risk, a behavior that is common during market rallies. On the other hand, when we see late day selling, it tells us that traders are skittish and do not want to expose themselves to overnight risk, one of the hallmarks of a bear market. Tomorrow’s closing action should give us an even better clue on market sentiment as traders position themselves ahead of a long weekend. While this of course is just a small slice of the market’s overall behavior, wise traders will use every possible clue they can uncover, especially during periods of erratic or uncertain price action such as the current environment.
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