With the stock market selloff well underway, many technical analysts are pointing to a few key characteristics in the S&P 500. 👇
First is the 63-day (quarterly) rate of change, which just turned negative for the first time since May. At its core, this indicator is a medium-term momentum indicator, so its shift from positive to negative is seen as a confirmation that sellers have taken control over this specific timeframe.
So, if these analysts believe sellers have taken control, where do they see buyers reemerging? One area they’re watching closely is in the mid-410s, where several different levels converge. 🎯
The primary indicator used in this chart is the anchored volume-weighted average price (AVWAP). As its name suggests, the indicator uses price and volume data to calculate the “average” price a security was bought/sold at since the date you anchored it.
Plotting this data helps identify the overall trend in the market (and the underlying sentiment driving that trend). It does so by indicating whether the average buyer, since your selected starting point, is making or losing money on their trade. 🧮
As you can see in the chart above, the AVWAP from the S&P 500’s 2022 high and its 2022 low are both around 410-413. Since the index is currently trading around 430, that suggests the average person is still positive on their trade and may look to “buy the dip” in the market. 💸
And since those levels line up with a level the market broke out above earlier in the year, that seems to be a spot many traders and investors are focused on as potential “support.”
We’ll have to wait and see whether we get there. But for now, this is a chart many are watching. 👀
And if this brief explanation leaves you wanting to learn more about the anchored VWAP, be sure to follow Brian Shannon (aka alphatrends) on Stocktwits. He’s literally written the book(s) on this. 📚