Not Bearish, Yet

It is not pleasant to see the strong momentum stopped suddenly and the market stayed where it was for 3 consecutive days. Worry is spreading and it appears legitimate to take profit and even plan to short. However, the technical evidences I saw so far do not point to much downside, and taking a short position might be premature.

On the daily chart of S & P 500 Index, bar 2 and bar 3 made new closing high. Because day traders will pull out of the market at the end of the day, the market shows its real direction at the closing price. A market keeps making new closing high is not bearish.

The volume of bar 1, 2, and 3 was below average and decreasing. This eliminates the doubt that big players are distributing chips, a usual action they will take before driving the market down. Furthermore, bar 1 and 2 made new intraday high with decreasing volume. This shows that while they retreated from the intraday high, they were not pushed down by fresh selling. If there was any resistance, the resistance is diminishing.

On the 15 min chart, price stayed above the blue line in the past three days, it cannot even go down to test the blue box, a strong support denoted by both the intraday gap and the previous high. Moreover, the majority of the trading happened above the green line. The blue line is barely touched twice. Because the blue line and the green line mark the consolidation range of Aug. 21st, this shows that many buyers are waiting in this area to buy dip.

It's an old saying that armatures open the market and professionals close it. On Aug 24th and 25th, the market raised at the open and dropped at the close. But today it dropped at open and raised at close. This indicated a subtle switch of mood between armatures and professionals. The real move may begin once most armatures are confused and step back to the sideline.

At last, it's safe to say that market has its own rhythm. When it moves and where it goes are myths to most of us, including me.