Monday Evening 19 July 2010
One of the primary ways to identify a trend is by observing a series of lower highs
and lower lows, in a down trend. That is very evident in the daily chart. Price
stalled at the 1100 level and produced a cluster of closes. This can mean one of
two things. It can be a sign of reversal, or it can be a temporary stopping point
leading to continuation of the previous move. Friday brought the answer as
developing market activity confirmed the overall weakness and turned price back
down in harmony with the trend.
Monday’s activity was a smaller range, contained bar. One could easily say that
sellers were unable to extend the range lower, but the day really belonged to the
buyers. The first hour was a wide range bar down with a very weak close. The
close, however, was still above the lows from Friday. It was apparent that there
was no downside follow-through, as was expected after Friday’s weak close, and
a poor weekly close, as well, so it was a matter of watching the character of any
potential rally.
A new low formed shortly after the first hour, but from then on, price worked itself
higher for the day. When Friday’s and Monday’s bars are viewed from that
perspective, rather than say sellers were unable to extend price lower, sellers were
simply absent, and it was the buyers who could not make a more impressive
showing. After making new highs late in the trading day, by the close, price had
given back some of the gains and gave credence to this observation.
This also demonstrates how reading market activity is subjective, at times, while
at other times, it can be quite clear. This is why it is so important to wait for
confirmation, whether it be for a market turn or for continuation. The way things
stand, Monday was a weak rally attempt after a strong selling day, and weak
rallies lead to lower prices.
We have to go with what is known. Events may change tomorrow, or the day
after, but until there is some obvious ending action, with the trend down, being
on the short side of the market has been dictated by price and volume activity
that says lower prices are likely, not guaranteed, but likely.
Staying short until the market says otherwise, for anything can happen.
