This past week, the market’s price trend finally aligned with its volume trends, which broke down a month earlier. One more item of note: Volume on the SPDR S&P 500 ETF (SPY) surged to levels not seen since January 2022. This massive SPY volume may indicate a volume sentiment setup for a capitulation bottom, observes Buff Dormeier, chief technical analyst at Kingsview Partners.
On April 3, the bears notched a 95% downside volume day on above-average S&P 500 capital weighted volume. This impressive performance was eclipsed on Friday with a staggering 99% downside volume day on high capital-weighted volume.
For the week, both capital outflows and capital-weighted downside volume outpaced inflows and upside volume at a 2:1 ratio on above-average volume. Despite the price destruction, these volume statistics, while bearish, reveal that less harm was done internally than might be perceived on the surface. But the breakdown in volume and capital flow trends we highlighted last month continue.
Our long-term S&P 500 support level at 5,200 was breached on Friday like a hot knife through butter. This former support level (5,200) has now become the next resistance point for the S&P 500. The index’s next minor support levels are between 4,800-4,900, with major trend and horizontal support residing at 4,650.
Our last holdout, liquidity as measured by the NYSE (stocks only) Advance-Decline Line, also broke trend this past week. But it still appears relatively strong compared to its price counterpart. However, its all-securities counterpart (NYSE Advance – Decline Line all issues) is still holding trend by a thread.
With the SPY, conditions are once again ripe for a VPCI “V” bottom setup...but that has yet to trigger. We will be closely monitoring how this unfolds.
Risk management is often the less-traveled path, but it is essential for prudent investors aiming for successful long-term financial outcomes. As we navigate this tumultuous battlefield, let us remain vigilant, strategic, and, most importantly, tactical. That helps ensure we protect our valuable capital while positioning ourselves for future opportunities.
