Tuesday 27 April 2010
The daily chart below shows a lot of numbers, 1s and 2s, and they represent
how many days price corrected by making a lower low. Once a trend is
established, corrections typically last from one to three days, sometimes up to
five, without disturbing the trend’s direction. Here, all of the corrections since
the February low have been either 1 or 2 days….not even a single 3 day
correction. [The Fed does have buying power].
In the past couple of weeks, the largest volume days have been to the
downside, yet price keeps rallying to new highs. Is it any different this time?
Possibly.
Of concern is the small range at the recent high, yesterday, along with the
low end close. This market driven source of information tells us that buyers
were not strong enough to extend the range higher, and or sellers were
sufficiently present to prevent buyers from extending the range. This is just
applying logic to interpreting the developing market activity. The low end close
lets us know that sellers won the battle that day.
Because the trend is clearly up, demand has already been proven. It is the
sellers that bear the burden of proving the trend is changing, and so far, sellers
have not done that. What kind of proof? Increased range size on down days,
accompanied by increased volume, followed by smaller range rallies on less
volume. Also, a lower low that takes out previous support, followed by a lower
high, indicating buyers are no longer in control.
All of this is absent, and until sellers can assert themselves, as described,
price will continue to work higher in this aging up move. Naturally, this can
change on any given day as we see newly developing market activity, but until
we do, it is status quo.
We had been short last week, then long from Friday, but exited long positions
when new day session lows occurred at 1212. For now, we are on the sidelines
to see what develops from here. We expect downside follow-through today.
How much, and to what extent will help determine if sellers are going to succeed
in wresting control from the Fed, er, the bulls. If the correction lasts but one or
two days, well, now you know the drill.
