Institutions Are Positioned Bullishly ... For Now

Summary:

• Size creates support and resistance.
• Institutions establish positions and then defend them.
• $436.30 is a very important level in the near term.

Volumeleaders.com is a research tool and tracks all trades > $500K and 10K shares and help users  identify areas of concentrated institutional activity which create support and resistance levels.  Institutions establish postiions and then defend them, so understanding where they're are most active gives traders an edge. Allow me to explain.

Between August 17, 2023 and August 21, 2023, institutions traded over $12B worth of SPY SPY across 90 disproportionately large trades between $436.30 and $436.40. For context, this is a substantial amount of inventory and doesn't happen very often. It's consistent with accumulation and the level at which these trades arrived is the largest level since the July/August decline began.  These trades are depicted below. 1

The dotted lines on the chart are automatically drawn and they represent the five largest levels (as measured in dollars) in the selected date range.  This chart shows levels during the month of August. Notice how price oscillates between them. This is because these zones are where the largest amounts of inventory were traded. Price slows down and/or reverses in these zones because it must chew through substantial amounts of inventory to pass beyond them. Much like air or water, price always takes the path of least resistance.

As you can see, $436.30 has been tested multiple times from above, and price has closed higher every time since Aug 21.  $436.30 is behaving as strong support and typically this behavior produces bullish outcomes in the near term. 

However, the nature of the decline on Aug 23 has me wondering if institutions have already managed to distribute the inventory they accumulated back to retail traders in the $443-$446 zone. Given how much was traded at support, I would have expected such an operation to take longer. Then again, that decline was rather intense as if to suggest institutions had little, if any, long inventory left to defend.  

Either way, price remains buoyed above $436.30 for now and perhaps another trip higher is in order. But the takeaway here is that any meaningful break *below* $436.30/40, and especially a close below it, would confirm that it's no longer being defended and that another leg down should ensue. Until then, longs are favored.

See additional notes on the chart below. 

1 – Many other trades appeared both above and below this level, but for illustrative purposes, only the trades in question are shown.

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