The S&P has been higher for seven out of the last nine sessions. And, after a low of 2346.58 back on December 26th, 2018, the S&P put in a high print today, January 8th, 2019, of 2579.16. Almost 230 points higher. The last time the S&P did this was over 2 months ago when it put in a low print of 2603.54 on October 30th and moved to a high of 2815.15 on November 7th – almost 212 S&P points higher in six out of seven trading days.
This is where the concept of Market Symmetry becomes important. But first, let’s review some chart basics, technical terms for a proper setup.
We know the market is a very orderly, albeit chaotic entity. Millions of buy and sell orders are routed and filled every day based on the ideas, strategies and subsequent desire-for-profit of those placing said orders. This sets up an interesting dynamic known as price action and we can extrapolate much from this using a chart to plot the movement of price in varying time frames.
The most ubiquitous of all charting time frames is the daily chart, which provides a top-down view of price action and visually represents the movement of price in aggregate over the selected period of time from the session open to the session close, which is a 6.5-hour time frame for the U.S. regular session. Additionally, charts can be viewed for selected durations, such as three months, six months, one year, etc. When using longer time-frames, this has the added benefit of providing the opportunity to view support and resistance levels, which assists market participants in making buy and sell decisions.
It also provides mapping for moving averages. Moving averages are a quick reference for the directional flow of price, and the distance the plotted moving average line is from the most recent price. The most important moving averages are the 50-day moving average and the 200-day moving average. These two moving averages are watched very closely for many things, including if/when and where they cross one another, where they are in proximity to price (as stated above) and are referenced both in market downtrends and uptrends.
The market has a memory. It tests, retests, visits and revisits price levels for the purpose of establishing support and resistance levels, which as referenced above, is an important and time-tested metric utilized by market participants to make buy and/or sell decisions. In the past, I’ve referred to it by saying that price likes to return to the scene of the crime. Maybe a little dramatic, but there’s some truth to ti, as traders who are less-educated don’t’ understand this concept and are taken to the proverbial cleaners by the ne’er-do-well nature of the market when it “returns.”
On a more pedestrian level, some traders believe this sets up a self-fulfilling prophecy of price movement, where there is always buying on support and always selling on resistance. But nothing is that reliable, dependable or predictable in the market and there is so much more than that to observe and consider when making a trading and/or investing decision. Dynamics such as market sentiment, economic data points, fear and greed and computer algorithms, all of which can, and do, create price momentum that can, and do, blow through support and resistance levels. Especially during times of high volatility and heightened uncertainty.
Enter: Market Symmetry
And then there’s Market Symmetry. The theory that buy and sell patterns repeat themselves. It is a little known, yet incredibly powerful aspect of Technical Analysis and is indisputable when looked at with an objective perspective.
So, what does this mean and how does it apply to and for the current market environment?
Re-read the first paragraph. You will see that the move back in October/November was comprised of 6 out of 7 up days for a total of 212 points. This most recent run to the upside is 220 points over a period of 6 out of 8 up days. This similarity in time and price is known as Market Symmetry.
The question we need to ask and answer is: will the next movement in price be in keeping with Market Symmetry? Or, will a new dynamic take its place? If price remains in Symmetry, then the probability is that we will have a down move. If price is affected by forces that break Symmetry, then we could go sideways or higher from here.
Again, patterns are powerful forces in the market. And they are viewed by those who know they exist with great respect. There are plenty of market participants who believe we must retest the low print of December 26th, 2018 before we can go higher and make new highs. And, there are those market participants who believe we’ve seen the lows and the market is now reacting to a more positive economic and global environment and will go higher from here.
Who is right? No one knows. But if Symmetry plays a starring role in the future price movement of the market, we could have another leg down in the market. And, the S&P is in a somewhat precarious position in terms of another indicator I use on my charts called the Ichimoku Cloud. This will be the subject of another (actually, several other) articles.
But… this is where it’s important to look at one other very important clue that is near-and-dear to my trading heart.
Looking To Volatility
The VIX is at 21.40 as of this writing. The last time it was at this level was back on December 14th, when the S&P was trading at 2600. With the market trading lower than this at approximately 2550, this sets up the speculation that prices will go higher. A lower VIX means less concern about going lower. It’s not a guarantee, but it does present a definitive clue for traders to assess and on which to make their trading decisions.
So, as always, the market is the final arbiter. And we’ll see how this all plays out as the market perpetually unfolds for us. But now we have a perspective we can use to effectively observe price action and discern probabilistic price movement based on patternistic dynamics that play out oftentimes under the radar of most traders. Does this provide us with a trading advantage? To a degree, yes. We must always trade according to our trading plan and our risk profile. By observing Market Symmetry, we can make decisions that follow these trading tenets.
And That’s a Wrap
Keep your eyes open for all manner of Market Symmetry in virtually any instruments you trade (except volatility) and you will begin to understand the power of Market Symmetry and how you can use this to your advantage and to help you better understand price action.
Tags: SPX VIX SPY DJIA IWM QQQ