Three weeks ago, all anyone could talk about was a recession.

The S&P 500 was trading under 3900. But this wasn’t the time to sit on the sidelines or to sell your portfolio.

This was a time to be a referee and call “foul” on the market for overreacting to the possibility of a recession without enough evidence…

A fast and furious rejection of that theory came when the market rallied 7.6% in 8 days. It topped out around 4200 in the futures market on Memorial Day.

Since then, it’s been noticeable (and even comical) how all those fear-based headlines magically disappeared.

I’m not saying they should come back.

In fact, at the lows, I called “foul” on the bears for bringing the market down without complete information.

But lately, the market is suspiciously stuck in a holding pattern.

And as it stagnates, my concerns grow for the investors who chased the highs of the recent relief rally.

That’s because it seems that this recent rally may have reeled investors closer to 4200 than 3900.

Let me explain…

On May 24, I explained why 3900 was a great area to buy using an analysis of volume distribution for each price level.

Here’s an updated version of that chart…


You can see how a triple bottom was hiding in the volume at the 3900 level. Meaning, the S&P 500 found support at 3900 three times in May. (The red sections represent days where the market closed lower, while the green sections represent days where it closed higher.)

But here’s what concerns me now…

When you combine all the recent price action since the lows, the volume profile shows investors chased this rally near the highs around 4125.

In the chart below, you can see how all that volume accumulated around this area…  


This is exactly why we’re stagnating. The buyers already bought, just at the wrong price.

With the Volatility Index (VIX) still above 25, a Fed meeting next Wednesday, and a big quad witching futures and options expiry next Friday… prices are guaranteed to fluctuate heavily.

That means stop losses are likely to get triggered at the wrong time. Typically, the longer it takes investors’ new positions to turn profitable, the more likely it is to trigger a stop loss.

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In last week’s essay, I called for the markets to do a whole lot of nothing for a while.

The volume profile above gives me more confirmation that we’re going to do just that.

And to be clear, “a whole lot of nothing” means prices will fluctuate with big, loud intraday ranges… but ultimately stagnate.

That’s why I’m eyeing a retest of the 3900-3975 area. The chart shows a lot of volume was traded here.

And I’m anticipating that one of the aforementioned events will scare the market enough to get prices back there.

But any retest of those levels that was caused as a result of purely technical situational triggers – like the coming options expiry, a selloff on a lagging indicator like the consumer price index (CPI), or even next week’s Fed meeting – will likely just be an opportunity to play the range back to the upside.


Eric Shamilov
Analyst, Market Minute

Reader Mailbag

In today’s mailbag, Earnings Trader member Al thanks Jeff…

Hi Jeff,

I made about a 150% gain on a call you were closing out before Memorial Day. I wasn’t able to sell until Tuesday after the holiday, but it was for $241 after paying only $102. Awesome work, Jeff. Thanks!

– Al T.

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming at [email protected].