Tuesday Evening 27 July 2010
In our previous article, we said S & P – When There Is No Clarity, Simply Wait,
[click on http://bit.ly/chb7rB]. Tuesday’s activity may not have brought the picture
into a clearer focus. Price was higher, the low was higher, and the close was
higher, barely. The range was smaller and volume was not all that great.
A few observations worth noting are how the bars at the high of this rally are
smaller in range, and that indicates a lack of demand, [a lack of supply as well],
because buyers are unable to extend the ranges higher. Volume on both of the
last two bars declined, supporting this view.
The close was barely higher on Tuesday, and it was about at mid-range on the
bar. From that, we can deduce that there were sellers present, certainly at the
higher end, and the 60 minute chart will illustrate it as a fact. There is another
important observation that may be key, and we will leave it to you to see if you
can spot it.
The three large red bars, on the 27th, represent intra day session activity, and it
is apparent that the first two red bars reflect a fast move down from the day’s high
at 1117. The third red bar drove price to the low of the day, but the close was high
end for that bar, indicating buyers stepped up in support. The remainder of the
day was spent in a narrow trading range between 1113 and 1107. Ignore the last
five tiny bars at the end of the chart. That is after hour market activity.
Is the picture any clearer after another day’s transactions? Hmmmm, not really.
It looks a bit negative, judging from the intra day activity, but in the end, price did
not break. Where were the sellers?!
What to do?
As was said in the previous article, clarity will appear, so wait. It is better to be
one step behind the market, letting it show its hand, than to try and be a step
ahead of the market, not knowing which way it will unfold. Too many want to get
a jump on what the market may do, instead of waiting for confirmation. There may
be some give up in price by waiting, but at least the market direction will be
clearer.
Does it always work out that way? No. We took a position in the Euro when the
hourly chart closed above resistance, this morning, confirming an upside
breakout. It turned out to be a false one and cost 48 pips, in the process. What
was known right away, at least in this circumstance, was that the breakout was
false, and there was no further need to hold the position, “hoping” or “wondering”
if it would work out. The immediate feedback from developing market activity
eliminated the risk of overstaying in a position. That knowledge is a plus for being
in what turned out to be a losing trade.
It is hard to buy a “creeping” market, one that rallies in smaller ranges and
lighter volume, along with identifiable resistance overhead. The 1117 area high
may turn out to be very important, as the market is susceptible to a decline.
However, until sellers take a stance, price will drift higher. 1130 is the next
likely resistance area.
Best to let the market declare its intent, either by rallying, or by selling off with
increased volume and wider ranges to the downside. At potential resistance, and
so close to more at 1130, one should not “chase” the market by going long.
Better to wait for a correction to gain a better price location and reduce risk
exposure.
Waiting for clarity, one step behind.
