Tuesday Evening 20 July 2010
Yesterday’s article is a bit amusing for saying that the market looked weak, then
adding the qualifier: for the near term. [See S & P – Market Still Looks Weak, Near
Term, click on http://bit.ly/9Sgnwn]. Just the day before was a long term
perspective saying the market would eventually retest the 750 lows, [See S & P –
A Longer Term Outlook For The Market – Bleak, click on http://bit.ly/c2XM9v].
We also added that for as bleak as that outlook was, it would take time, and the
market could enter into a trading range, first.
As the market developed, activity was weak on the opening, and that was the
extent of the “near term,” for price then embarked on a rally that was 35 points
higher from the low. The fast turnaround also speaks to the second paragraph
that analyzed the small range Monday bar. We said it could look like sellers
were unable to extend the range lower, but said that it was the buyers who failed
to carry the day.
It was both, and in that order. The market did continue to sell off early, but by
the end of the first hour, buyers stepped in and took control, gaining momentum
as the day evolved. An anticipated support was the 50% retracement of the 1050
area. Once price held, half of the sort positions were covered at 1054. That will
be covered in the 60m chart.
On the daily, the small bar from Monday helped lead to the dramatic turnaround,
creating a wide range rally bar with a strong close. One thing about those kinds of
closes, especially when going against the trend, is that they can also be
exhaustion-type rallies. Rather than guess at what may happen, after covering
short positions and going flat, watching from a neutral stance is called for.
Short positions were initiated on Friday the 16th, at 1074.50, just after the wide
range bar that broke the trading range. When it became apparent that the 50%
1050 support area was holding, at least initially, half positions were covered at
1054, just after the low bar on the chart. As price held the small rallies, intra day,
a determination was made to cover the balance, at 1063.75, just two bars later.
The next bar retested 1060, and price never looked back. The rally was steady
and strong with very little correction. The final rally high bar that topped at 1085
had the highest volume of the last two days, and the close was off the high. This
is a sign of sellers present at the highs, and a reminder that the trend is down,
and this is a counter-trend rally.
This little review is to show how one has to be flexible in the markets and not be
lulled when carrying a position, long or short. Paying attention to developing
market activity is crucial to avoid costly mistakes and to take as much from a
position as the market allows. Who would have expected, after a 35 point drop
on Friday when price failed at resistance, that two days later there would be an
equal 35 point rally?
It does not change the overall picture, but it does say that nothing can be taken
for granted. In the end, for every day, no one is bigger than the market. By
respecting it, one can consistently do well over a period of time and keep risks
manageable.
