Wednesday 20 January 2010
Tuesday saw a price reversal as 1,300 tic gains erased last Friday’s 1300 tic
loss. Price also stopped just under 11 January highs of 1148, and as the
market opens almost 800 tics lower on Wednesday, unable to continue higher.
In fact, price has declined 1,400 tics, yet again, and the trading day is less than
an hour old, as we write.
Sellers looked like they were in control after Friday’s close. Buyers looked like
they were in control after yesterday’s close. “Who’s on first?” Tuesday’s rally
was a lack of sellers. It was not a demand-driven rally. We make this point to
give clarity to the character, or perhaps better expressed, lack of character that
defines this market.
In an uptrend, demand is proven, so the onus is on sellers to demonstrate
they can change the trend. We have already identifed supply selling as selling
on increased volume that breaks support levels. This is in contrast to every
day selling that occurs as a matter of course in any market. When even
ordinary selling lessens, we get the kind of rally that occurred where weak
selling effort translates into the kind of rally that produced yesterday’s gains.
Note the difference between the two days under discussion. Friday’s bar, 4th
from the right side, closed off the lows. This showed some buying at the lows.
Yesterday’s bar, second from the end, was a touch wider and closed right on
the highs with no apparent selling standing in the way. Volume was slightly
less compared to Friday’s volume. What you are seeing is the poorly defined
character of this continuing up trending market.
Mention was made of the 11 January high. The range for that day was small,
and the close was middle of the range. This tells us there was a stand-off
between buyers and sellers at an area where buyers are supposedly in control,
[at new contract highs]. Eight trading days later, price has acted like a yo-yo
covering 960 tics and closing only 250 tics higher, net gain. That was how
November and December were defined, as well.
These points leads to the conclusion we have been making throughout the
past several months: this market rallies in a weak manner, and that makes
it vulnerable to supply coming in and taking over. As we also acknowledge throughout the rallies, supply selling has been absent. We know this from the
lack of volume when price does sell off, and zero downside continuation on
most any sell-off day. Corrections are 1 to 3 days, typical in an up trending
market, yet gains are larbored, evidenced by the trading ranges.
If anyone is seeking clarity on the stock market, this is not a bad description
to capture the lack of quality movement, in either direction. What this says is
that the market will continue in this meandering move up, but…and this is what
keeps us from wanting to follow the upside, once any supply selling comes onto
the market, it can break down very quickly.
Caution continues to be the message. There is no reason to be short. None.
It is also difficult being long. Sometimes sidelines is the best place to be.
