Here is a daily chart of the cash S&P 500 and its daily trading volume (Thanks to StockCharts.com!).
In the current, high volatility environment I prefer to day trade the e-minis. However, the same methods that give me an edge over very short term fluctuations can also provide insight into what the market is doing over longer time frames.
I can illustrate this idea by explaining how I came up with my current 840 upside target for this rally from the 666 level. First of all, I noted that the last rally, the one from the November 21 low at 741, carried the index up a little more than 200 points. A rally of similar size now would carry the average up to 866 (blue rectangles). I also like to use the midpoints of reactions to compute likely support and resistance levels. In this case the midpoint of the rally from the November 21 low was about 840. So I am using this lower number as my target while recognizing that the market could easily go 25 points higher than that without disturbing the rhythm of the bear market.
A note on volume: People put too much emphasis on whether or not volume is expanding or contracting during a price trend. My own view is that the most important comparison to make is between level of volume during the current price trend and the level of volume during previous trends in the same direction. On this score it is clear that the S&P 500 volume during this rally has generally been higher than the volume on any previous rally during the past 6 months. This is a clue that this rally is not over and that the 840 level is a reasonable target.