Has the S&P 500 finally found its bottom?

It seems that the S&P 500 has finally found its bottom and there are buyers pushing it upwards again!

BTW. I predicted almost the exact spot for this and posted it here two weeks ago. You can check it out here:

Dale’s S&P 500 prediction

Anyways, one picture tells it all:

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What happened before the price turned up?

Today, I don’t really want to talk about the big picture though. I want to look at lower time frames. What I am interested in is how the volumes were distributed recently in the strong rejection of the lower prices. This is basically the last two weeks.

You know, before the big guys turned the price upwards again, they needed to enter their longs. They needed to buy cheap in order to make money when they pushed the price upwards again.

When there is a sharp reversal of prices like now, there usually is a volume accumulation area before that. Volume accumulation area = that’s where the big guys entered their longs again.

If you look at the picture below (ES; 60 Minute chart, that’s S&P 500 futures) then you can see that there were pretty nice and massive volumes traded (accumulated) there. The absolute volume peak was around 2420-2430.

This is the place the aggressive buyers entered most of their longs! Who sold them? All those guys who thought the US economy is done for and that this is THE END! Those guys sold them 🙂

Who was buying? Big institutions and the clever guys like us who use the Volume profile!

2420-2430 support

What now? Now this heavy volume area should work as a strong support. Why? Because those buyers who entered their longs there don’t want to see their longs in red numbers! They want the price to go up and shoot through the roof!

So, if the price makes a pullback to this area, those buyers will be defending their positions. They will be buying aggressively and the will be trying to push the price upwards again.

That’s what is most likely going to happen (if there is the pullback). For this reason, the 2420-2430 area (where most of the volumes got traded) should work as a strong support.

The pandemic is not over yet!

However, the corona virus war is not over yet. The first shock is behind us (it is the shocks that cause those crazy big sell-offs) but the situation could get worse. It is hard to tell if the pandemic has reached it’s peak or not but if it somehow manages to spread on a larger scale, then this big dip on the stocks may not be the last one we see. So be careful. Don’t go too crazy with your longs! And very importantly – don’t leave your short-term trading positions opened through the weekend! In a situation like this a Monday opening gap could be deadly!

I hope you guys liked this article. Let me know what you think in the comments below!

Have a GREAT weekend, stay safe and happy trading!

-Dale

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A BIG Trading Opportunity on US Indices – Weekly Trading Ideas 23.3.2020

*Disclaimer: Presented opinions, trades and trading ideas on the markets and charts is not advice nor a trading recommendation. It is general information and it is for educational purposes only.

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S&P 500 Volume Profile Analysis

Just yesterday I was talking to my friend from the US and I was telling him that it would be best for them to just stop all intercontinental flights.

It is pretty funny because when I woke up today I saw this

I would like to say that this friend of mine was not Donald Trump but still it seems he also got this idea 🙂

All travel from Europe to US suspended

This step is in my opinion a good precaution to stop the corona virus from spreading across the globe. But what does this mean for the US economy? A severe blow! Bringing a big industry like intercontinental airlines to a 30 day halt will have economical consequences. Also it is not just this industry but also all the industries that are somehow linked to airlines.

I was not surprised when I saw the biggest US stock index S&P 500 drop  after this news.

What does the current selling on S&P 500 mean for us traders? In my opinion this is an opportunity. US economy is strong and nothing like this could bring it to it’s knees. Also, a pullback after years of a crazy strong uptrend is a healthy thing for the market.

S&P 500 discounted

I like to talk about investment assets as if they were regular stuff you buy in a store. Imagine that you go shopping and the same thing which was $30 yesterday is now $20. It is the same thing as yesterday, same quality, same manufacturer. What does a reasonable person do? He buys all he can carry and store, right? Because the stuff is discounted!

We can apply the same approach to S&P 500. Pullback in S&P chart means a discount. In my opinion S&P 500 is a “good quality product that won’t spoil”. So the only question is how big the pullback needs to be before S&P gets real cheap and the big guys start pushing the price upwards again.

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Volume Profile analysis

The best tool to uncover the strongest institutional supports and resistances is the Volume Profile. I opened a monthly chart of S&P 500 and looked 12 years back to see how the volumes were distributed in this whole period. This is the sort of BIG picture you want to examine when thinking over long-term trades.

The heaviest volumes in this 12 year period were accumulated between years 2014 and 2016 around 2070.00. From there a strong buying activity started again.

When there is a pullback big enough to hit this significant Volume Cluster sometime in the future then I think aggressive buyers will come into the market again and they will start buying like crazy. This should move the price upwards again.

As you can see from the picture above, the price is currently at another significant Volume Cluster. This could also prove to be a strong support and turn the price upwards again. But if you want to buy with a real BIG discount, then 2070.00 is the place I would picked for a big buy.

Long-term investment

With this kind of trade you need to treat it like a very long-term investment.This is not swing trade you hold for a few days and then get rid of it. This is a position to hold for a couple of years.

With such a kind of an investment you need to think about it like this: First the asset needs to be good. You need to like the S&P 500 and you need to believe in it. You need to believe in the US economy. Only then you should check out the chart and look for a place where you would like to buy it.

I hope you guys liked this S&P 500 analysis. Let me know what you think in the comments below!

Happy trading,

-Dale

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PS. Remember that this is not a trading recommendation, only my opinion. You guys should make your own mind about what to trade and how to trade it.

Where Will The S&P 500 Sell-off Stop?

The S&P 500 index is in a crazy sell-off since this Monday. The growth from the last three months was blown away just in three days and there is still no sign of stopping.

What caused the sell-off?

One thing is fundamentals like the Coronavirus slowing down the global economy (-0.1 to -0.2% was the IMF optimistic estimate).

The other thing is that when there is a strong uptrend there are always pullbacks and also “Long squeezes”.

A Long squeeze is what I think we currently see on the S&P 500. Big trading institutions don’t want to be buying and adding to their long positions for too high prices. Big guys don’t want to buy expensive. What is best for them is simply manipulate the market into a sell-off like we see now and then buy for cheaper/lower prices later.

What do the other market participants do when they see a sell-off? They start to panic and sell their longs. This helps to drive the sell-off even more!

What do the big guys do next when the “weak buyers” are out? The big guys start buying again! But this time for much lower prices! It is as simple as that.

When do you think is the best time to start such a Long squeeze? When there is panic (Coronavirus,…). This makes the sell-off more scary and people are more prone to believe that they should really quit their long positions (they quit by selling them to institutional buyers).

There were so many cases like this in the past and I am quite sure this is not different.

How do we profit on this?

Somebody might say that the best way how to profit on this sell-off is to enter shorts and make some money on the panic. I am not a fan of this because I think this is a Long squeeze (only a trap for buyers) and that the price will revert and go to new highs again.

I think it would be best to act like an institution and ask ourselves – where are the institutions most likely to enter their longs again?

In my opinion, they will do it in a place where they think enough liquidity is. Big guys always need huge liquidity. And since big liquidity is where heavy volumes are (or were), we can use our favorite tool Volume Profile to identify such places.

In this case I used Daily chart and printed the Volume Profile over the uptrend area which started in 2019 and continued until the previous week.

Volumes in this area look like this:

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As you can see from the screenshot above there was a heavy volume area around the 2930.00. The heaviest volumes in the previous and this year got traded there.

I think this will be the zone the aggressive sellers will try to reach. Then I expect an end of the panic and a new start of buying activity.

Resistance becoming Support

There is also one more thing (apart from the heavy volumes) which confirms this trading idea. The thing is that this zone around 2930.00 worked as a strong Resistance in the past. The price strongly bounced off this area twice. When the price went through this Resistance, then the Resistance became a Support.

You can see this on the picture below. It is also a Daily chart, only zoomed out so we can see more into its history:

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BTW if you would like to learn more about the Resistance becoming Support setup then go here:

EXPLAINED: Resistance becoming Support setup

I hope you guys liked this article! Let me know what you think in the comments below!

Happy trading!

-Dale

Trading Volume Clusters on ES (S&P 500 Futures)

Quite a lot of people like trading indices using the Volume Profile tool.

In my experience, the Volume Profile works fantastic with indices. In fact, I am also planning to add ES (SP 500 futures) to the levels which I publish daily for members of my Trading course.

So, today, I would like to have a closer look at the ES and show you my intraday trade analysis using Volume Profile there.

Let’s look for some Volume Clusters!

There was a strong buying activity on Monday and buyers were pushing the price upwards.

When I see an intraday uptrend like this, then I start to look for significant Volume Clusters formed within the uptrend.

Such Volume Clusters point to places, where the buyers who are pushing the price upwards were adding to their buying positions.

So, when I used my Flexible Volume Profile to look in the trend area, then it showed me this:

*ES 03-20; 30 Minute chart:

In the picture above, you can see three significant Volume Clusters. Those were the places buyers used to accumulate their buying positions.

Let’s now have a look at those Volume Cluster one by one!

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1st Volume Cluster (3351.50)

The first Volume Cluster got formed at the break of day – Monday and Tuesday. There was a nice little rotation and heavy volumes got traded there.

Two hours before the market close on Tuesday, this level got tested. There was a sharp and precise reaction to it.

Because the price already touched this level and reacted to it, I consider it a tested level. For this reason I will discard it and I won’t trade it anymore. Chances for another reaction are lower now.

*ES 03-20; 30 Minute chart:

2nd Volume Cluster (3338.00)

Out of the three Volume Clusters I like this one the most.

As you can see, the volumes in this Volume Cluster are really nicely visible and the level is very clear and easy to see.

Most of the buyers from this uptrend were adding to their positions at this place.

What I expect now is that when the price makes it back to this level again sometime in the future, those buyers will become active again and they will start pushing the price upwards again.

This does not need to happen today or tomorrow, not even this week! Markets have good memory, so even if this level gets hit in 2-3 weeks I will still believe in a buying reaction from there.

*ES 03-20; 30 Minute chart:

2nd Volume Cluster – VWAP confluence

What I also like about the 2nd Volume Cluster is that it is in confluence with 1st deviation of Weekly VWAP!

It is the grey line I marked in the picture below.

Right now this line is little bit below my support, but it is still moving and slowly heading upwards. Chances are that when the price re-visits this support again, this 1st VWAP deviation will be somewhere around.

*ES 03-20; 60 Minute chart:

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3rd Volume Cluster

the last Volume Cluster was created before the beginning of the uptrend.

Funny thing is that the heaviest volumes within this uptrend were not accumulated there (they got accumulated at the 2nd volume cluster).

Usually it is not like this! Usually the heaviest volumes are placed before the big move starts.

I don’t think this is anything we should be concerned too much about, but I think it is an interesting thing worth noticing.

So, what happened here was that buyers were building up their buying positions (around 3327.00). It took them around half a day. Than they started placing aggressive buy market orders which started to push the price upwards into the trend.

When the price gets back to this level again, I expect that those strong buyers who initiated this whole buying activity will become active again and that they will try and push the price upwards from this level again.

That’s how I currently see the ES.

I hope you guys liked the analysis. Feel free to leave a comment below.

Happy trading!

-Dale