Monday 5 April 2010
The current move in stock indices has been perplexing, if one does not consider
government manipulation. This rally reminds us of a bumble bee. On paper,
describing the aerodynamic make-up of its body size and wings, one wonders
how it can fly, yet, fly it does, and quite well.
This looks like a bumble bee rally. From a purely technical perspective, there
should have been some larger corrections in a rally with very small range bars
to the upside. Yet, the rallies continue to “fly” in a way that confounds. Looking
at a chart of the daily activity, below, it is evident that price is moving higher.
Putting the price movement within the confines of a channel can provide feedback.
When price is moving higher along the upper channel line, it is a sign of a strong
market.
In the past five weeks, price has been making new highs, but not in a show of
strength. The 4th bar from the end typifies an exhaustion type bar that often
precedes a correction. The next bar, third from the end, shows some selling at
the top with a close just above mid-range on the bar, and on less volume. Last
week’s bar, albeit a shortened trading week, was very narrow, indicating a lack of
demand. Of course, every time we mention a lack of demand, in this kind of
trading environment, we have to qualify it by saying there is less supply, and
that means price will keep moving higher.
In keeping with the bar observations just made, note how recent activity has
moved away from the upper channel line. The “strength” shown in previous rally
phases is absent as price makes new recent contract highs. All in all, until supply
enters the picture, and by supply we mean larger range down bars that have an
increase in volume, and they also break previous support….until that happens,
this bumble bee of a rally will keep on flying.
Normally, and this rally is not one of normality, from our perspective, one looks
to buy corrections to get a position. Waiting for a correction keeps one from
getting stung by “paying up.” However, the “corrections” have been a bit
misleading. If this were Kitty Hawk, and the Wright Brothers were the
technicians, making flight possible would have suffered a setback. Being neither
entomologists nor pilots, the flight of this technical pattern has kept us off course.
Maybe we should become morticians in preparation for the R.I.P. of this rally.
One thing we know for sure, reports of the demise of the bull move have been
greatly exaggerated.
On the sidelines.
