Tuesday 16 February 2010
Two trading days ago, S&P was 30 points lower. This was quite a rally
following a 107 point drop. Today’s rally was more of a lack of supply
[selling], than from demand, [buying]. The distinction is important
because it gauges the character of the market. What is a lack of supply
rally?
When one side of the market is absent, the other side can move a market
more than otherwise. The biggest clue to explain the extent of this
unexpected degree of rally has to go back to a week ago from last Friday,
what we called a mini-selling climax. What we can now say, based on the
extent of the current rally, is that more buyers were in the market than we
thought was the case. See the article, S & P – How To Find Potential Support,
[click on http://bit.ly/cNzIIW, scroll past the third chart, comment made in
third paragraph.].
The fact that that Friday’s close was just marginally lower means the
volume change is more heavily weighted to net buying. That lends more
strength to the overlapping bars depicting a struggle between buyers and
sellers, and the upside breakout confirms that buyers gained the
upperhand. The fact that volume was less today than it was last week tells
us that the market rally is attributable to a lack of sellers in the market.
With little to stand in the way, buyers were able to extend gains to the
almost 20 point rally that occurred.
As an aside, the markets have changed behavior in the pat few weeks.
They act more like the story gingerbread man who says, “Catch me if you
can!” There are no set backs to buy or weak rallies to sell. The markets
are simple moving in fast spurts. Last Friday’s intra day rally from 1060 to
close at 1079, while still keeping within a trading range, and than adding
another 20 points today, speaks to that kind of change in market action,
and not just in the S&Ps.
Yesterday, in the article, S & P – Price And Time, we said to expect 1104 to be
retested, with 1095 area as the half-way point, [click on http://bit.ly/9l72AJ,
second to last paragraph]. There are two caveats of which to be aware in the
retesting process. 1. The speed with which price is approaching potential
resistance is fast. This means price can possibly overshoot it. Possibly does
not mean probably, so one has to monitor HOW present tense market activity
acts at the 1104 area, if it is reached, at all. 2. The decrease in volume tells
us there is not a lot of strong buying behind the rally, and that makes it
weaker, in nature, which would make the 1104 area a potential sale.
We also have the most important information: knowledge of the trend.
The daily and weekly trends are down, so the short side on weak rallies is
favored. The intra day trends are up, and they turned up rather quickly
and unexpectedly, and that is cause for concern for the larger time frames
are more controlling, [daily and weekly]. A point and figure count runs to
1108, as potential rally energy. We need to see the intra day trends start
to turn down before engaging in any selling.
Trading with the primary trend, which is down, means we will be watching the
character of any further rallies in the next trading day(s), looking for smaller
bars on a rally, and a lessening of volume. This will be the market’s way of
telling us that the rally is expending its effort. Then, we will look for the rate
of decline bars to become wider with stronger volume, an indication that
sellers are starting to resume control.
Sounds like a plan.