A Dec 28 Look at the SPY 15min Chart Shows Divergences but Does it Matter?

Dec 28, 2009: 12:09 PM CST

Let’s take a quick look inside the recent SPY (S&P 500 ETF) rally as seen on the 15-minute intraday frame – we’re seeing volume and momentum divergences juxtaposed with rising moving averages and trendlines, so what does that mean and is that unusual?  Let’s see.


(Click for full-size image)

We’re seeing the 15-min SPY intraday chart above, with the 20 and 50 period EMAs and the 200 period SMA (red).

Under the price, we see the 3/10 Oscillator and Volume (colored).

A classic chartist would highlight the negative momentum and volume divergence that has occurred since price began its move higher starting on December 21st and note this as a ‘non-confirmation’ of higher prices (flashing a warning signal for traders to heed).

However, an interesting dynamic is taking place – it’s the end of the year which is seasonally bullish and prices can be pushed higher on low volume simply in the absence of sellers (rather than the aggression of buyers).

Another bullish dynamic is that of the “Popped Stops” phenomena, which creates higher prices by ‘slicing through’ the stop-losses of the short-sellers/bears have placed above expected resistance levels.

There is an oozing, creeping upward drift which is being fueled in part by low volume and short covering (for now).

We would expect to see heavy buying (or at least stable volume instead of the downward trendline in volume) to feel confident that buyers were firmly in control over the sellers.

Thus, watch for any breakdown of the rising 20 EMA which has contained price as a sloping support level so far.

The holiday and end-of-year period is almost always marked with low relative volume, and volume increases into the new year (which begins next trading week).

It’s possible we will continue to see this upward drift until then, but it is a tenuous, unstable upward drift as evidenced by the declining volume and momentum readings.

Caution is the name of the game for both bulls and bears as we wind down 2009.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

4 Comments

4 Responses to “A Dec 28 Look at the SPY 15min Chart Shows Divergences but Does it Matter?”

  1. pipercolt Says:

    probably rangebound for a few months

  2. Corey Rosenbloom, CMT Says:

    Hey Piper,

    Probably, but this environment is definitely the exception to the rule, and not the rule itself.

  3. pipercolt Says:

    probably rangebound for a few months

  4. Corey Rosenbloom, CMT Says:

    Hey Piper,

    Probably, but this environment is definitely the exception to the rule, and not the rule itself.