Thursday 10 December 2009
This is a market that is having trouble getting out of its own way. You can
see from the trend line, drawn up from the July low, the S & P continues to
make higher lows. Our focus is on the higher highs, labeled A, B, C, and D.
It is apparent the each successive high is making less upside progress. The
most recent high, D, barely made it above C. The time spans are also getting
shorter between each rally.
There are a few interesting observations to be made. When price declined
from the high of rally B, the decline was longer and volume increased. This
tells us that sellers were active on the decline. However, the selling was not
strong enough to overcome buying as the low of the decline held above the
previous decline low from the beginning of October.
The next rally to C did not go very high over B, and just as importantly,
volume declined on the rally. Buyers were not there in supportive numbers,
literally. The rally to the most recent highs, D, showed persistent resistance
when price was over 1111. We covered that two day Key Reversals in a recent
article, S & P – Ayn Rand Nailed This Over A Half Century Ago!, in the third chart,
a daily. The volume at the high was the highest in over a month, and it showed
sellers were present, based on the location of the close, around mid-range.
The four week-long trading range is not a sign of strength. However, when all
is said and done, we have to show respect for the trend, which has yet to be
broken. Even with all the signs of weakness described, and there are a few
other things not covered, there has been NO supply selling to break a recent
low.
The S & P has turned into a trading affair, 1115 area upside, 1080 area
downside. Since March, there has been no supply-caliber selling. None. We
addressed this as a POMO issue, the market being driven up for political
purposes, a function of window-dressing so common to government agencies
across the board. If supply selling does not come in soon, the market may
have one more “last grasp” to the upside that could reach the 1200 level, +/-.
[see S & P – Will POMO Win Again? ]
What we know for sure is that trading ranges are always resolved as the
balance is taken over either by the forces of demand or the forces of supply.
The last two attempts to breakout to the upside, last week, failed, but so have
attempts to go lower. One day, and the further along the right side of the
trading range price moves, the sooner that day will come.
For now, respect the trend, but be very aware of its weakness.
