Monday 25 January 2010
As a follow-up to Saturday’s article, charts have been included to visually show
the change of market activity. The first chart is of the Nas-S&P E-Mini spread
which we have been indicating as the trend leadership since November 2008,
months before the March 2009 lows of the rally just ending. We said that the
spread needed to break 730, which it did in a resounding fashion. Nas-S&P
E-Mini Spread Sending Mixed Signal, [click on http://bit.ly/6r1WZV]. The
inability of this spread to keep pace with daily market’s attempt to make new
highs was the tipping point. Compare how price was pointing down, here, with
the price activity on the daily chart, [third chart below].
The small range high week, second bar from the end, was a warning sign, but
there have been so many warning signs in the last several weeks that
confirmation was needed before acting on it. The break under the 1127 support
was surprisingly fast, without any weak retest rallies. The decline is the largest
weekly one since the March lows.
Point “A” marks the low of a selling wave of 92 points over a five week decline.
Point “B” marks a selling wave of 73 points over a two week decline. Right now,
price has dropped 62 points in the first week of the current sell-off, one that has
erased the past two months of advancing.
The daily chart simply gives the clearest picture of the reversal on sharply
higher volume. This is without question a confirmation of a change in market
direction, and the plan now is to sell weak rallies.
