The S&P500 Runs Into Overhead Supply, Perfectly Normal

JC Parets
March 10, 2016

This doesn't have to be complicated guys. Supply and Demand dynamics do not change. I keep hearing how this market is "algo driven" or whatever, but those algos are built by humans. Supply and demand is based on fear and greed in humans, whether discretionary or systematic. I think the debate about algos is a waste of time for all of us. Let the noisemakers, who aren't trying to make money in the market, worry about that stuff. We're here to focus on supply and demand. Period.

The S&P500 has struggled over the past week to continue this monster rally from last month's lows. It should not be a surprise to anyone that we have struggled. Why? Because prices just ran into a ton of overhead supply. This correction is normal, and should be expected. Blame the algos if you want to sound smart in front of ignorant people at a cocktail party, but where I come from, we call this "normal":

3-10-2016 12-55-19 PM spx d

We had a nice bullish momentum divergence at last months lows: the higher low in RSI with a lower low in price. This is a classic catalyst to get a counter-trend rally going. We got back above the August and September lows, which sparked the squeeze. And now we are running into former support levels.

Should anyone expect this market to just keep running higher without, at least, first acknowledging that overhead supply? Algos or no algos, this is perfectly normal. I don't care about the ECB or the FED or who the presidential candidates are. This is supply and demand 101 folks. Former support is turning into resistance this week.

It's perfectly normal, thank you.

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Tags: $SPY $SPX $ES_F

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