Wednesday 21 October 2009
Earlier today, we said we would no longer comment on this specific market
because most everyone one of the previous articles have been warnings of a
correction or change of trend, and all to no avail. To save credibility, it made
no sense to keep ringing the same bell. Late in the trading day, we
recommended short positions at 1080, so our absense was less than brief.
As noted, there are so many observations to be made about today that not
all can be covered here. An important one is to be flexible and always be
ready to go with what the developing market activity demands. For as many
times as a warning sign was given here, there was never any supply, sellers
coming into the market and assuming control as a follow-through. Today, it
looks like that was the case, but it was not apparent until the last 50 minutes
of trade.
We were already resigned to seeing price go over 1100, possibly 1115,
inspite of the indications of a weakened market. Note was taken, around
2:10 p.m. CST, on the first 60 minute chart below, how four straight hours had
similar closes…called clustering, a sign of an inability to make directional
progress. Still, there was NO selling coming in. One thing that has been
apparent throughout this rally is the lack of supply to take advantage of weak
technicals. With no supply, and anemic demand, relative to the six months of
rally effort, [Thanks to FED/POMO], in the battle of no supply v hardly any
demand, demand was winning by default.
Then a funny thing happened. Price started to sell off, surprisingly because
it had not done so in the past in similar situations. We felt we were having a
stopped-clock moment in being right, at least this time. The first chart shows
the market structure just after 2 p.m. You can see the four straight closes,
after a runnup in the first hour, and a higher close preceding these four. 1100 appears in the upper right of the chart, a resistance point.
There has been so much talk about new, high levels being attained, with even
higher levels in the making, so everyone could see 1100 staring back as a level
to be breached. If you look at the market activity of the 19th, when price came
closest to 1100, the ranges were small, as we noted in a previous article. The
rally approaching 1100 was weak. Then today, the rally was even weaker with
the cluster of closes. But there was no selling coming in to take advantage of
the obvious weakness, AGAIN!
To emphasis this, the daily chart, a higher time frame with greater significance,
shows six days of moving laterally, exhibiting no effort to go higher. Here you
can see where just a modest amount of selling effort could tip that precarious
movement down, easily. We thought that five days ago, so six was just more
of the same, and we could no longer justify issuing caution.
There is that 1100 mark that the whole world sees, and price is limping its way
to the top. Then that funny thing called selling started to happen, and this is
the important point we started making in the second paragraph, about being
flexible. We have seen selling before, leading to nothing more than a lower
buying opportunity for those who were willing to follow the POMO bandwagon.
Despite resigning to the idea of 1100+ prices eminent, today or tomorrow,
price behavior was saying otherwise, and one HAS to be willing to be flexible
and go with the developing flow and respond immediatley.
We have said selling will come in, at some point…next hour, next day, next
week. No one knew when. The market was sending a message in both volume
and market activity. Price failed at important resistance. Demand could not
take the next step when it had the opportunity. Finally, the vacuum was being
filled with new selling activity at the most appropriate price level, a point of
resistance. It was all coming together, late in the day when few were expecting
or prepared for the sudden turn.
The markets wait for no one. Be there and be ready to act, or stay out. It is
that simple. Woody Allen once said, “Ninety percent of life is just showing up.”
We have been showing up and are of the belief that this last 10% may matter.
Results?
Take a look at the hourly chart just 50 minutes later, the third chart below. The
cluster of closes gave way. Price tumpled going into the close. We went short at
1080 on the way down because we also know that markets can turn on a dime
when least expected. Look what may have been left behind! A failed probe to
the upside.
The 6th bar from the end rallied to new highs on a range smaller than the wider
range bar just before it, the volume was still relatively high, but the close was in
the middle of the bar, a draw between buyers and sellers. It can be called a
draw, but the edge goes to the sellers because they stopped price cold from
advancing at new highs. The probe higher would have triggered stop losses for
weak shorts and buyers of new highs. Because price came right back into the
range tells us there was NO demand at that higher level. A message from the
market; another piece of the puzzle.
The decline of the last two bars is the largest decline for the month of October,
and the largest since 23 September, which had continued selling on the 24th,
at that time.
The final daily chart shows results at the close. A wide range bar down,
moving AWAY from resistance, on increased volume, [supply], and a low end
close. Price went under the entire six day lows and also lower than the 23
September rally high of 1075.50, now support.
Will price continue lower? We do not know for sure, but so many technicals
have been flashing weakness this month, some kind of correction is likely.
Just like developing market activity provided direction late in the trading day,
the market will reveal its intent hour by hour, day by day, and we are ready to
read its message. Measures for the downside will come next time.
