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Why Didn't Market Violently Sell Off Last Week?


The market had every excuse to sell off, but it didn't. And if a market cannot do what it should do, then you need to take note.

MINYANVILLE ORIGINAL Sometimes nothing shows you more than something. Last week the bearish camp had the opportunity to show something but instead showed nothing. As prices drifted lower and lower while the Federal Reserve sat on its hands then Mario Draghi told us that the European Central Bank (ECB) was doing nothing immediately, the market had every excuse to sell off and to do so violently. After all, it had just rallied the prior week on expectations that Draghi's comments about the central bank "doing whatever it takes." But it didn't.

Folks, if a market cannot do what it should do, then you need to take note. If sellers disappear as lower prices appear then the probabilities of further price depreciation dissipate.

Here's a chart of the trading last week in the more speculative small capitalization space. It has been much weaker of late than the general market. This is where weakness should have expressed itself. It didn't


As seen in this chart, as weakness developed on Wednesday of last week, volume did increase on the small caps as viewed through the iShares Russell 2000 (IWM) but compared to what it was going again (anchor bars anchoring the higher of the two anchored support zones) it came up short.

The downward price follow-through on Thursday as a result of the ECB disappointment pressed through that support zone and tested the next, but by the end of the day the sellers came up lame and short of their objective. Note how volume disappeared as the swing point low and anchored support zone were tested. Again, if volume dissipates as prices decline as compared to what is being tested, then the odds of the test succeeding likewise decrease.

At this juncture the IWM is set up to reveal more information and to tell us if the long sought after $141 are on the SPDR S&P 500 (SPY) is about to be reached (see Pick Your Spots: Trade Entry Is Critical to Success). A push through anchored resistance zones would reveal additional information to tell us that the bullish camp remains in control of the tape. I expect it will as the question of 141 SPY seems more like when rather than if.

Twitter: @tatoday
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