Absorption - are the buyers absorbing the sellers, or are the sellers absorbing the buyers
This can be a really difficult principle to determine as it occurs, but always appears quite clear in hindsight.
On the XJO index chart, it appears to me that price is in the process of absorbing the sellers, and if so here are some of the principles involved.
Firstly, the breakdown line can be seen, this is where the overhead resistance (or selling pressure) is likely to begin.
Look at those two bars marked, they both appear poised to break down and move lower on an increase in volume.
However, neither of them see any follow through to the downside at all, in both cases the next bar is up, which is not what is expected if price is about to breakdown. Have a look at all the red downbars, they all have higher lows....this can be thought of as showing a 'pressing nature' towards the upside, and if you look closely, the two downbars marked (and also Friday's bar) have closed within the range of the previous bar, whereas a truly bearish bar that will see downside follow through, will often (usually) close clearly below the previous bar's low.
In this and similar circumstances, the expectation is for an acceleration up and away from the danger zone in the near term, however a false break (or stop run) the wrong way is sometimes seen prior to the true direction being established. Should that occur here, it would probably be seen as a shakeout (similar to the one marked as an example).
