Just like the children’s board game of snakes and ladders, or as it is known in the US as chutes and ladders, coming down the snakes is always much faster than climbing back up the ladders, and so it is proving for primary equity markets in the US.

It has been a long slow climb back to regain the 17,000 region on the daily chart for the YM emini (DIA, quote), which was taken out with such devastating speed during the second half of August when markets were roiled by stock market crash. At the time, this prompted the ‘big short brigade’ to emerge from their caves to call the top of the market and the development of a longer term bearish trend following three days of a dramatic shake out. I was not one of them, and as regular readers will know, put my neck firmly on the line to explain why! My view was based on the volume profile associated with this three day period of dramatic price action, and it is not difficult to see why, given the presence of buying by the market makers was self evident on the third and final day.

The buying was clearly visible in the deep lower wick which also confirmed sustained stopping volume, with further accumulation then taking effect through much of September. The trigger for the current phase of recovery was then signalled on the 2nd October, a day which saw a sustained fall in the early part of the trading session, only to be followed by a sharp reversal with the candle closing on a deep lower wick and high volume. A final phase of accumulation by the market makers to top up their warehouse before moving out of this phase of price action.

From a technical perspective, the only issue at that point was the clearance of the 16,800 high of mid September, which would then provide the requisite platform for a further move higher. This important level was duly taken out, but worryingly on falling volume and narrowing price spreads as the YM now begins to approach the key level overhead at 17,250 (as defined by the blue dotted line of the NinajTrader accumulation and distribution indicator). This level defines the floor of the congestion phase of earlier in the year, and as such its importance cannot be overstated. This phase of price congestion was one of the longest for a major index, and for any continuation of the current rally is now pivotal.

In the last few days we have seen this index and others, move into a congestion phase on narrow spreads and average volume, which are not strong signals of any resumption of bullish momentum, but with the FED still dithering the markets are simply waiting for next week’s FOMC meeting. Much will now depend on the price action and associated volume of the next few days, and for the rally to continue, we have to see the 17,250 level taken out with strong price action and rising volume, and if so, then the Santa Claus rally may indeed begin its run into the holiday season. Do I hear the sound of reindeer hooves? I hope so, and with the VPOC indicator remaining well below the current price action, this too is confirming the current bullish sentiment for the index.

Anna Coulling is a trader with over 16 years’ experience and founder of AnnaCoulling.com