;

Market Action

14 June 2021 By PDSNET

In general, we encourage investors to take a medium to long-term view of the market and not to get involved in “trading” or intra-day buying and selling, especially in highly geared derivative instruments.

However, watching the intra-day progress of the S&P500 index and other indicators can be very instructive, especially from a technical perspective. The S&P is probably the most highly traded and followed of the equity indexes in the world and therefore the most technically reliable. You can watch it, real-time, from when its opens at 3.30pm South African time (or 4.30pm in our summer) at:

https://www.google.com/finance/quote/.INX:INDEXSP#scso=_OIBvXeSCL7aq1fAPq6m6iAw6:0

Consider the following example:

S&P500 Index: 8th June 2021.

 

This is the intraday chart from last Tuesday, 8th June 2021. As you can see it covers the period from 9.30am when the market opened (4.30pm in South Africa) until about 2pm. You will notice the bold, blue horizontal line which gives the previous day’s close at 4226.52. What I want to draw your attention to is how important that previous day’s close was – and usually is.

The market opened up at around 4235, but then quickly fell below the previous day’s close. You should note how the S&P rallied three times to the previous close at 4226.52, each time failing to penetrate that level and falling back. After the third attempt, the bulls clearly lost heart and the index fell heavily down to the day’s low of 4210. There it formed a double bottom and began to rally. The rally was strong enough to take it above the previous day’s close – which then became the support level as the bears repeatedly tried to drive it down.

This principal of resistance becoming support once broken (and vice versa) is common in all types of charts.

 

The next chart shows the market action for Friday 11th June 2021:

S&P500 Index: 11 June 2021.

 

The index opened above the previous day’s close (4239.18) but fell quickly. Note that the previous day’s closing level did offer some support but was penetrated. Then it became a resistance level. When the index failed to penetrate the previous day’s close the bulls again lost heart and the index fell to its low for the day of about 4233. From there it began a new rally which took it up through the previous day’s close (after some resistance). That rally was fairly muted and came back down to test the previous day’s closing level (now a support level) several times. When support at 4239.18 held, the S&P moved rapidly higher to close at a new all-time record high of 4247.44.

The following is a chart of  the end-of-day candlesticks for the past 31 trading days on the S&P:

S&P500 Index: 30 April 2021 - 11 June 2021. Chart by ShareFriend Pro.

 

This shows the context within which the intra-day charts above took place. The candles representing those two days last week are identified by green arrows. They occurred as the chart was testing the previous record high (at 4232.6 on 7th May 2021) from before the 4% mini-correction. You can see that last week the candles bumped that previous high a number of times before it was finally broken on Friday and reached a new record high. The point is that end-of-day candles are actually a summary of what happened on Wall Street during the trading day, while the intra-day charts show the detail.   

We advise you to watch the S&P500 index real time whenever you can. It is extremely instructive. You will see the importance of the previous period’s closing level and the significance of formations such as double tops and bottoms. These effects can also be useful in understanding end-of-day charts. After all, an individual candlestick is a summary of the market action of a single day.


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

The Confidential Report - December 2021

America

The US economy is still booming. Weekly jobless claims, for the week ended 20 November 2021, fell 71 000, while consumer spending jumped 1,3% in October month alone. Third quarter gross domestic product (GDP) came in at 2,1% - hammered by supply constraints, but above analysts’ expectations. Unemployment has fallen to 4,6% and

Transaction Capitals Trendline

In last week’s article on Grand Parade, we drew your attention to the importance and usefulness of downward trendlines (drawn above a downward trend) in establishing the best point to buy a share. This week we draw your attention to the benefit of upward trendlines (drawn below a rising trend) as a method of determining when a share, with a strong rising trend, has corrected

Grand Parade Trendlines

Technical analysis, which is the search for and analysis of patterns in share price charts, can become very complex and mathematical. Literally thousands of line indicators have been developed which claim to improve the investor’s probability of being right when determining the moment when a share’s price turns. In our experience, the

Private Investor Advantage

Finding winning shares is not just about looking for quality. It is about finding quality when it is cheap – which usually means finding it when it has fallen heavily and is out of favour with institutional fund managers. We advise you to look for the “mountain behind you” in the chart.

As a private investor

New Record High

As we predicted, the S&P500 reached a new all-time record high on Thursday 21st October 2021 at 4549.78. This officially means that the correction that it was going through is over. That correction took the index down to a closing low of 4300.46 (on 4th October 2021) – which is a 5,2% decline from the cycle high of 4536.95

Hulamin - Insider Trading

In our opinion on Hulamin, last updated on 3rd September 2021, we noted “What is noteworthy about this share is that it has a net asset value (NAV) which is more than 3 times its current share price making it a possible takeover target”.

On Thursday last week the company issued a bland “cautionary” notice

Calgro-M3

Calgro used to be the darling of the institutional investors. Every fund manager in South Africa was buying the share and it rose dramatically from as little at 50c in February 2011 to an intraday high of 2275c on 11th August 2015. At this point it had a market capitalisation of R2,8bn and was trading on a price:earnings (P:E) ratio of

The Confidential Report - October 2021

America

The S&P500 is in a correction which began after 2nd September 2021 when it made an all-time record high of 4537. Since then, it has fallen by as much as 249 points to an intra-day low of 4288 on Friday (1/10/21). This correction has taken 20 trading days and amounted to 5,4% at its worst. There are a variety

Context

The context within which a chart is viewed is vital to your understanding of it. In this article we will attempt to show the broader context within which we view the market action which took place last Friday.

INTRADAY

Let us focus our attention on the S&P500 index, which is a weighted average of the