Recent Market Profile Insights about the SP500 SPY

Oct 9, 2010: 6:22 PM CST

I was playing around with a new indicator in TradeStation that shows a similar style of Market Profile (Time, Price, Opportunity) charts and wanted to show the recent progression of the big move up recently in the S&P 500 (SPY).

Let’s take a look at the chart and see what the “profile” reveals:

(Click for larger image)

You’ll almost certainly need to click for the full-size image – as the chart image is large.

The first thing that jumped off the chart at me – in terms of “Market Profile” concepts – is the unique bounce-move up off the August lows.

Students of MP techniques will note that the “Value Area” (the vertical dark black line I highlighted) continuously rose during this bottoming-period.  This type of pattern is common at rotation price bottoms ahead of a big move – which is what we got.

MP Students would also note the “Excess” or rejection tails (highlighted) at the $114 level (the “Bs” and the “As”) which represent buyers rushing in to buy the ‘excess’ or long tail of the price extension lower that failed to generate lower prices.

A popular statement is:

“The market auctions lower to shut-off selling” – and in this case it did so with three ‘rejection’ tails.

Flash-forward through the rally – notice the Value Areas continued to climb – to the present.

Though other indicator charts show all sorts of bearish negative divergences, the profile=style chart above reveals a stable and rising Value Area in the context of the current price consolidation.

Whatever your bearish thoughts may be, that’s somewhat bullish from this chart perspective – value is rising.

Prior to our current stabilization and Value Area distribution and price rotation around the $116 level (in the SPY – 1,160 in the S&P 500), we had a similar multi-day Value Area stabilization region just under the $115 (1,150) area.

That was a known price resistance level that the market recently broke – and value is now congregating above that level.

So, unless we see a sudden price move back under the $115 (1,150) value area, the profile style chart may be hinting at even higher prices to come.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

(note – “Market Profile” is a registered trademark of the CME Group/CBOT)

6 Comments

6 Responses to “Recent Market Profile Insights about the SP500 SPY”

  1. Chomen Says:

    That would be the conventional wisdom at this point.

  2. Michelle B Says:

    I disagree with Chomen as Corey deferring to increasing market value is not conventional. What is conventional at this moment is the attitude that the market must pull back and not go any higher. But it can and will go higher if value continues to be built higher despite the market's seemingly parabolic appearance. If value stops from being built higher, than watch out.

    The $115 value area can show to be a quite choppy layer–price can travel and muck around in that area, giving out head fakes in both directions. The SPX did that at the 1090 area.

  3. Festival of Links 10/10/10 StockTwits U Says:

    […] Recent Market Profile Insights about the $SPX via @AfraidtoTrade […]

  4. Cash Says:

    Yes, there is a prevalent attitude among “logical” bears that the tape must always match the state of the economy. WRONG. The market is NOT the economy and divirgences can continue farther than your account. In an auction market value is determined by the perception of the participants NOT the outcome of the data. Logic really has no place in the markets, whether this is a gov't engineered rally or not. IT IS WHAT IT IS. The MP DVAL areas have been expanding on low volume for weeks and since “price is the only thing that pays” , the short term trader must follow, until overhead demand is met. Every bear sees a retrace as the beginning of that hoped for wash out, only to be disabused. This is a psy-op and bears are a stubborn bunch. Rather than trading the order flow of where the Value Area gets extended they position for a future tape based on their perceived reality of where the market “should” be. The old saying, trade what you see, NOT what you believe can be very profitable here. But that would be too simple. So instead, bears offer up warnings all the way up and constantly attempt fades. Unfortunately my bank does not accept warnings, only settled funds..

    Corey , just found your site. Great insight and would be great to see you do this MP insight weekly or even monthly.

    trade safe,

    Cash

  5. Brettonwoodsii Says:

    Corey

    Can't find this TPO indicator in TradeStation … can you direct me? Thanks for all your work.

    PC

  6. Corey Rosenbloom, CMT Says:

    Definitely – but it's not mine to give away so I can't give a direct link, and it's been a while since I downloaded it from the TradeStation forums. What I'm using is a free indicator (that should still be) located on the TS forums (membership required) that is called the TPO Pro5.0b. You probably could just do a Google search for it, and there are variety of other attempts to recreate MP on TradeStation that may be better or worse than this one.