Saturday 9 January 2010
The markets had a strong close into new highs on Friday, and this may help
clarify the picture somewhat. One of two things can happen: Price can escalate
into a buying climax, or, this can be the start of yet a new leg to the upside.
We have not been advocates of buying into this aged bullish market for
numerous reasons cited; primarily, the lack of demand volume behind what has
been an artificially-driven market. Our reasoning has been best described in our most popular article using a quote from Ayn Rand, as a summation.
S & P – Ayn Rand Nailed This Over A Half Century Ago!
For those who have not followed us previously, the artificially-driven market
stems from the Federal Reserve pumping money into the banking system via
Permanent Open Market Operations, [POMO] for the express purpose of
supporting the stock market, the exact same process that Wall Street used
via the derivatives that brought on the collapse of 2007.
[See S & P – Will POMO Win Again? as one example.]
The S&P, and other indices, have been in a rising wedge formation, struggling
but still rising, and they broke upside, closing strongly. It will serve little
purpose to describe or analyze volume, or lack of it, for it has not mattered in
the past during this move. When a market reaches new highs after a struggle
to get there, we can expect a failure from a last gasp exhaustion of the move,
or it will receive new life and have another extensive rally. Though technical
common sense argues the former, political realities must be acknowledged as
favoring the latter, a continuation.
At least there may be some signs that will verify which. If an exhaustion move
is to follow, it will become readily apparent by a dynamic move up. Little
guesswork will be required. If there is to be continuation of some price duration,
the move will continue in a more orderly fashion. Typically, after price jumps
over a potential resistance pattern, [rising wedge in this instance] it often will
pull back and retest the breakout. On such a pullback, the ranges tend to
narrow, [range = high/low for the trading day], and volume shrinks. This will
present a relatively safe buying opportunity.
Other technical issues aside, the closes in the markets for the past week have
been higher end of the day’s range. This tells us, bottom line, that buyers are
in control at the end of the day, and who is in control is what matters.
Developing present tense market activity should demonstrate the character of
the market’s response to this breakout and provide clues as to which direction
to pursue. For now, more upside has to be favored.
Buying a retest of the breakout will be the order of the day, if price conforms
to evidencing pullback buy characteristics.
