Sunday 18 July 2010
Not many look at charts beyond intra day and daily when assessing the markets.
We are presenting the Quarterly and monthly charts, rarely viewed by most,
because they portray the overall conditions of the market, sans the daily/intra day
“noise” that keeps people focused on the proverbial trees. This is our
“forest-like” point of view.
The bull market ended in the first Qtr of 2000. What followed was a normal
correction in 2002, and then a retest of the market high. Why do we call it a
retest if a higher high were made in the final Qtr 2007? It sometimes happens
that way, and this was one of those times. Note the size of the bars and the
shorter duration in time to reach low in 2002, 11 Qtrs. Contrast that with the
smaller ranges on a more labored rally to retest the high, 20 Qtrs, almost twice
as long to cover the same ground lost.
It is the character of the decline versus the lesser character of the recovery rally
that defines the quality of a given move. From the 2007 high, price has made a
lower swing low. What characterizes a change in trend? Higher swing highs in an
uptrend, and lower swing lows in a downtrend. After the April 2010 high, we may
now be seeing a lower swing high to confirm this change in trend. That April high
now becomes the most pivotal point in the developing market scenario. It also
happens to be a Quarterly Outside Key Reversal, [OKR]. This is a potent piece
of information.
OKRs have been covered here often. To save going back, briefly and OKR is
when the market makes a new recent high, then a lower low, and in this instance,
also a lower close. In fact, the second Qtr close was very weak. It almost reversed
the previous two Qtrs’ effort. It is also obvious, [once you look], that volume
increased to the highest level since the low, just over a year earlier, March 2009.
April 2010 could very well be the last gasp rally within a bear market envionment.
If it stands, it may be decades before it is exceeded, again.** From here on,
prices are about to embark on a protracted move lower and should easily exceed
the 2009 lows around the 740 area.
**We say this but will qualify by adding that the Fed’s deliberate debasing of the
US fiat Fed “dollar” could rally the S & P to $50,000, but that “value” will be
relative to the cost of $200 loaves of bread.
One of the characteristics of a retest rally, which is what the April 2010 high is, is
that it retests a prior last support area, and that previous last support was 1202
in July 2008, just before price fell with such|unbridled speed. Note the size of the
bar in April 2010. It is very small, and the close was under the mid-range point of
the bar. We know that a small bar in a rally shows the inability of buyers to
extend the range higher, and that is because sellers came in and stopped the
effort. The position of the close tells us that sellers won the battle that month.
There are no accidents. Previous support becomes future resistance. It is worth
mentioning that the volume for that April was low, a sign of a lack of demand.
Where did the decline from April stop? Right at the high of November 2008, the
highest high for over nine months. For your information, markets are
continuously testing and retesting previous support and resistance areas, all of
the time and over all time frames. These are just two examples, an on a larger
monthly time frame.
The April high to recent July low may be the parameters of a trading range for
the next several months, if price does not just continue lower. As we often say,
anything can happen, and there is absolutely no way to know how a market will
unfold into the future. So the anticipation of a trading range may or may not
happen.
Keep in mind, these are larger time frames, and they take longer to develop and
confirm, but you can rest assured that the larger money interests are keenly
aware of, and use them. Next we move to the “tree” level of a 60 minute chart.
On a much shorter time frame, a trading range had developed between the 1075
area and just under 1100. Once the 1075 support gave way, on a day of no
forgiveness for the longs, a short position was initiated as it became quite clear
that the market was breaking down. Note how once price traded under 1075,
every bar had a low end close, showing that sellers were in control and buyers
were unable to make any kind of showing.
The 1075 area is likely resistance on a retest of the breakdown that occurred.
One has to watch the developing market activity to see HOW a retest of potential
resistance transpires, and the market will provide those clues.
Short from1074.50.
