Tuesday 19 January 2010
As a follow-up to the last article on the S & P, the spread we brought to
everyone’s attention last week, NAS -E-Mini Spread – A Clue For Market
Direction, [click on http://bit.ly/8JyYYC], continues to show that the breaks
seen, such as Friday’s, tend to not have downside follow-through. Tuesday
morning’s early activity, in the first hour of trade, bears this out with an 800
tic rally.
Last week, the spread was near the support channel line. Today, it continues
to move higher, along with the markets. What has been problematic is the
yo-yo movement of price…down 1200 tics within the first hour’s trade, and
today’s first hour trade has price rallying 1,000 tics. There was little preparation
to indicate uninterrupted, quick moves as they occurred in 10 minute spurts,
uncorrected.
The overall activity since November has made the market difficult in which to
be landed. When you look at the recent gains from monthly high to monthly
high, they are less than impressive for what has to be called a bullish move
up since March of last year. What makes it problematic from a technical
perspective is that the lack of market strength inevitably invites sellers to step
in and take over, but for a variety of reasons, that has not been the case. No
matter how weak the rallies, selling efforts have been weaker, a market anomaly.
It makes the anemic up moves suspect, yet after brief sell-offs, they resume
higher in a grinding fashion. On the one hand, the grinding higher has bullish
implications because it indicates shorts are continually being punished by having
to cover and pay higher to get out. Of course, we are talking about those shorts
who ignore the market trend, and they should expect to be punished as a
natural consequence. On the other hand, the weak demand moves up are always
susceptible to selling activity, and we just saw evidence of that this past Friday.
The reason why we present the spread chart again is because spreads tend to
lead, and as long as the spread points higher, this push-pull activity will remain
standard fare. The spread bears watching, at least on a weekly basis, as a
possible shot across the bow to the bending trend that continues to confound
and beat the bears.
