Friday 14 May 2010
The market showed the kind of weakness in Thursday’s rally we wanted to
see, within the down trend, to warrant a short position. The previous two
trading days had smaller ranges and rallied on decreasing volume as price
approached anticipated resistance. Yesterday, price rallied to a slightly
higher high, but as the end of the trading day neared, began to fall on
increasing intra day volume.
An important point to make is in noting the first sell-off low from contract
highs, the second bar after the 1216 high. The low that day, 28 April, was
1176.75. The rally high from yesterday was 1174.75. This leaves a little
space of 2 points that the rally could not fill. That is a subtle bearish
implication, showing the market rally was weak, in that regard. There was
more.
We had 1175 to 1185 identified as a zone of resistance, [see chart with
horizontal resistance lines, S & P – Rally Into Resistance]. The small range
rally on decreasing volume was unable to reach that area, and that, too, tells
us the character of the rally is weak, and it should lead to a resumption of
the down trend. Next chart.
This is a 30 minute chart that shows how narrow the bars are at the high,
contrasted by the wider range bars when price declines. The day session high
was 1173. Around 9 a.m., CST, price made a low, 1161.75, and then rallied
to close at the upper end of the range, [the bar is located in the middle of
the session]. That activity had to be respected as a show of strength. We
waited for a wide range bar with a low end close, underneath the trading range,
to confirm a resumption of the down trend was likely underway, and that was a
place to get short, third bar from the end.
What we need to see on Friday is continuation of the exhibited weakness.
The expectation is for a retest of the lower levels from last week. The initial
support target is the 1141 area. How the market gets there, if there is a
decline, will tell us the likelihood of where price may eventually go.
