The weekly chart for SPY doesn’t just show price—it’s a masterclass in Wyckoff’s third law of effort versus result, occurring within a congestion zone, revealing the current trading environment as one of the most precarious standoffs in years. Congestion zones like this are the “spawning ground” for trends, as I explain in The Complete Guide to Volume Price Analysis. But right now, with no clear consensus on whether we’re facing a major correction or just a healthy pullback, the key is spotting absorption (merchants quietly building positions) versus distribution (offloading to retail). Moreover, this congestion also highlights that we can have both distribution and absorption.#
So, inspired by one of my followers on X, here is a five-point VPA checklist to distinguish between absorption and distribution.
1. What Happens After Heavy Selling?
Absorption: Big sell volume, but price barely budges (effort not rewarded—merchants absorbing).
Distribution: Big volume + sustained drop (supply dominates).
2. Do Supports Hold or Break?
Absorption: Multiple tests at the same support (low-volume pokes = weak supply).
Distribution: Break + flip to resistance (merchants letting it run).
SPY Now: The lower congestion edge (~$675-$673) has tested several times without conviction—holding for now, but a high-vol breach flips the script.
3. Shape of Candles at the Lows
Absorption: Lower wicks + quick bounces (sellers trapped).
Distribution: Full red bodies closing low (no buyers).
4. Effort vs Result
Absorption: Huge selling effort → minimal drop (disharmony).
Distribution: Effort → proportional drop (harmony for bears).
SPY Now: Classic 2026 theme—rising volume, stalling price. Merchants are propping highs to squeeze shorts while distributing quietly.
5. What’s Happening Under the Surface?
Absorption: Equal-weight/rotation holding (look at the RSP/SPY ratio, which is rising).
Distribution: Everything weakens together.
From the VPA merchant perspective, this isn’t about headlines or Mag 7 fatigue—it’s about reading their intent in the volume-price disharmony. We’ve seen effort (high volume), yet results (price progress) are compressing: Narrower candles, failed highs, and that stubborn grind higher. Add February’s seasonality (historically the 2nd-worst month after September, averaging -0.1% returns) are we looking at a repeat of the similar congestion phase from 2024/2035 – also highlighted on the chart.
For traders, this congestion is an opportunity: A high-volume breakout = markup continuation; a down break = markdown entry.
For investors? Patience—corrections/crashes are wealth transfers, not ends in themselves. Trends spawn here, so wait for that all-important volume-confirmed breakout.
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By Anna Coulling – Creator of Volume Price Analysis
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