Looking at the markets in terms of supply and demand is one of the most common and simplified ways of analysis. Identifying where the market is “valued” describes balance. Looking at the weekly chart of the S&P500 we notice two very important things.
1. The prior week’s candle is a doji bar or spinning top as talked about in Japanese Candlestick Charting Techniques by Steve Nison. This is a potential reversal bar, with confirmation, in this case, a close above the high of that bar.
2. We also notice that the current weekly candle’s body engulfs the prior week’s body, bullish engulfment. Volume on the SPY during this decline has increased, giving weight to the bears.
We will watch for a break above or below week 6’s candle to confirm that the market is moving into a new area of value. This value concept can been further explained using The Auction Market Process aka. Market Profile.