Market Pauses After Volatile Week

Stock markets opened down this week, testing previous low levels before bouncing back on Friday.  On the week, SPY closed down 1.32 to 186.63.  Last week, we saw that major markets could have been testing the weekly closing low.  Early action this week brought that basing action into doubt.  Markets did surge sharply on Friday however, paring losses and giving a valiant attempt to close up for the week. 

That was not to be the final outcome as SPY, an exchange traded fund that replicates the Standard and Poor's 500 index, closed down 0.7% on the week.

For those who watch the market throughout the day, the volatility of the week as well as through much of the year, has been providing outstanding profit opportunities as markets have continually bounced from extreme oversold to overbought conditions. 

For those looking for longer-term growth opportunities, the situation remains unclear.

Viewing the weekly line chart, we can see that price is trying hard to break down through the current support line.  It might have closed slightly below but the significant breakdown, similar to what we saw when price broke below the 20 week moving average, has not yet occurred.  And, if we view the daily bar chart, it does appear the we held support at the previous interday lows.

So next, what happens again at the 20 day moving average?  Looking at my normal scenarios, I would look for some continuation of the upmove on Tuesday, when the market returns from it's holiday weekend.  Will it find resistance at the moving average? 

One chart we have been looking at recently is the standard deviation of the moving average change.

This is a derivative of a derivative of price so it's significance my be minimal, however, it does show that even though the 20 day moving average is still moving down, the intensity of the move is moderating and should this trend continue, we could see the moving average go flat.  That would be more indicative of basing. 

Moving back to the weekly view, we see that Size, the measurement of volatility, continues to increase.

As mentioned in the past, as long as Size continues to increase, one must stick with the trend, and right now, that trend is moving down.