This graphic illustrates a couple of key points quite nicely.
Firstly, the idea the market activity is "random" or somehow totally indiscernible is a falsity promoted by the muppets on CNBC and the buy/hold fund managers who benefit from holding others' money and collecting management fees. It's no accident that a buy response was encountered in March 2009 at the exact price level where a 4+ year bull market began in March 2003. While the IWM traded above its 2000 high in mid 2007, it is worth noting that the SP 500 and Dow auctioned almost precisely to their 2000 highs before the bear phase began. The inference could be made that institutional traders were buying the smalls as they began unloading their large cap supply at the high as the bear phase began.
Secondly, the market does not auction in a linear manner whether in a bull or bear phase. It rotates, and if one studies and observes the past rotational tendencies, one can make inferences about the potential of a rotation in either direction. We know the IWM tends to auction in roughly 100-150 point increments as secondary reactions to the primary trend. This is observable in both the 2000-2003 bear market and the current 2007-2009 bear market we find ourselves in. So, we have an advantage vs. the uninformed when studying areas of past supply and demand and the amplitude of the rotations between the two. These facts enable us to make more informed discretionary trading decisions.
Source: ESignal
