Tuesday Evening 25 May 2010
What could have gotten uglier for the bulls appears to have ended, at least for
now. Price did reach the February low, forming a double bottom, and they often
hold the first time on a retest. The daily chart shows an interesting situation.
Ignore the last bar, for it is the start of the evening session going into
Wednesday’s day session.
The four bars preceding the last bar cover a range of 80 points, but note the
closes. They cluster within a 14 point range. We discussed the significance of
a clustering of closes back in early March, [see Euro – A Clustering Of Closes,
click on http://bit.ly/av4JQy]. They can signal a turning point. In support
of that possibility, two of the four days have high end closes, and that is an
indication of buyers being in control.
Note the position of the closes. Tuesday closed just a touch higher than
Monday’s close, and also above last Thursday’s lowest close of the group, and
the move down. This is letting us know that smart money is getting long on
these sharp price drops. Smart money is trying to hide its hand, but the logic
of the activity just described shows the “tracks” left behind, which many will not
notice for what it connotes.
We did not include a weekly chart, but the lows for this week have shortened
in net loss over the previous week, and the shortening of the downward
direction is an indication of a loss of momentum, even though it seems the
drop is more dramatic in impact.
With this read of developing market activity, and concluding smart money has
been accumulating long positions, in addition to short-covering, we can expect
a rally. The question is, how will it unfold? It may be in one of two ways. One,
a continuation higher, leaving little opportunity to buy, unless one is willing to
pay up or miss the rally, for smart money does not like company, or two, a
weak rally on Wednesday will tell us to expect retesting of the recent lows.
The good new is that we do not have to know how things will unfold beforehand.
All we need to do is watch how the market unfolds, knowing at least a few
possible scenarios, and then take action once the unfolding develops. If there
is a set-up to take advantage of whatever takes place, we will know how to
react without having to guess.
