Monday 19 October 2009
The most reliable information is generated by the market itself, as it records
all transactions in the form of price and volume. From the most experienced
and informed to the least knowlegable and inexperienced, the “Tape” captures
all of that activity. That is the beauty of being able to read market activity.
It puts us inside the “boardrooms” where those in the know make their buy/sell
decisions, and we get to read the results of the decision-making through price
and volume activity.
We show the weekly chart, once again, but with a different point of view than
the breakout level already discussed. The horizontal lines are the last rally
high, now resistance, and the line below is the half-way mark from 2008 high
to low, another resistance point. They are not absolute; rather, they act as
guides. It is important to be aware of them and watch HOW price reacts/
responds to them. That will give clues as to whether or not they will hold.
Adding the channel, drawn by connecting the February and September lows,
and then drawing a line that is parallel, using the June high. The line, as it
extends up and away from the June high, represents the future. It is clear
that as the line crosses into the 90+ price area, it converges with the horizontal
lines explained above and from yesterday’s article.
What is interesting to observe about the price development within the channel
is the direction of price once it reached the June high. Price moved laterally just
prior to the recent rally. It did not decline. Understand, the line off the Feb low
could not have been drawn prior to some low from which to create the channel.
That the market moved laterally instead of down offers a different perspective
of what we have been saying about Crude Oil since the breakout, last week.
It is also apparent from the channel that once price reached the 65 area, and
held, it became the support for the bottom of the channel line. That leaves a
lot of room for price to rally before reaching resistance at the upper bounds of
the channel line. This does not mean price has to, or will reach the upper line.
It is just a guide. Price could just as easily stall mid-way within the channel.
Nothing is taken for granted.
This is the “message of the market.” Little pieces of information are taken
from obvious points, and all are factual. The lines drawn are created from
developing market activity, price. The lines did not create the bounds market
“Trading is as old as the hills. What has happened before will happen again.”
Markets do repeat their patterns over and over, not always in lock step, but in
behavior that can readily be recognized, and just as importantly, acted upon
with a much higher degree of probability. This is what reduces risk exposure,
knowing what to expect, based upon what has happened in the past.
Not many use the higher time frames as a guide, to their detriment. The
daily and “What is going on right now?!” intra day time frames can keep one
too close to the “noise” of market activity and prevent one from seeing the
elephant in the room.
Long, with expectations of higher prices, and looking for key areas from which