Market Profile Update on the S&P 500

Tom Alexander

Tom Alexander

I am going to begin the New Year with a brief analysis of the S&P. Next week I will be providing you with a short primer of basic “Market Profile™” trading concepts accompanied by a glossary of terms for future reference.

S&P

Auction market principles use a simple, consistent and objective method for determining Value. Value is defined as price over time. In other words, the amount of time price trades in a given area determines the relative value for that area. The area in which price spends the most time trading is the area of greatest Value. The migration of Value determines the trend of a market. These principles hold true across all degrees of time. The initial signal a trend may be changing is when an area of previous relative high value (High Volume Node on the graph) of a degree smaller than the one being analyzed is taken out.

In the twenty-five years I have been trading I have never seen more disbelief in a rally in the stock market. Technicians and fundamental analysts alike have been “left in the dust” by the rally from the March low. “Pick the top” remains the predominate game among gurus and most traders. This is a waste of time and a fool’s game if you are a trader. The path of least resistance is up until the S&P (and other indices that are in very similar positions) does something objective that signals the trend may be changing. In the S&P, as of January 5, that signal would be a close below 1080.

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Want more Market Profile with Tom? Try these posts:

Interview with Jordan Roy-Byrne CMT from The Daily Gold

The Edge: 7 Interesting Comments About Markets in 2010

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