Wednesday 23 June 2010
Too many try to be ahead of the market, and that is where the risk is the
greatest. Better to be a step behind, just after a potential situation becomes
clear. There is usually a give-up in some price advantage, but the advantage
of being in tandem with the market direction is worth the wait.
Monday’s strong opening led to a substantial sell-off, creating a failed upside
probe. What is a probe? In the chart below, it is a rally above a previous
resistance that looks to see what kind of buying exists above. Obviously,
buyers were not present, so the market dropped back under resistance.
Volume was not particularly high, so we attribute that to a lack of demand that
gave way to sellers being more in control, almost by default. We also know
that whatever buy stops above that area have been taken out.
The strong volume, ease of movement up bar, 10 June, has been
emboldened to have it stand out. A 50% retracement of the 8 Jun low-21 June
high falls right at the high of the 10 June bar. When there is that caliber of a
demand rally, [demand because volume increased], buyers will defend it,
starting at the high, to as low as the low. Where any retest of the bar will stop
depends on the market conditions. Right now, there is ease of movement down,
evidenced by the wider ranges.
The 1100 – 1105 area was potential support during Tuesday’s trading. It
finally gave way in the last hour and a half of trade. It would not be prudent to
go short, at that point, because of the potential support from the 10 Jun high
that is also a 50% support. As we said, follow the lead of the market instead
of trying to anticipate the unknown.
We want to see if the 1083 area will hold as support. If it does, a buying
opportunity may develop. If it does not, then we can look for a weak rally to
establish a short position. There are so many variables that one has to be
flexible and let the strongest moving force of all, the market, be the final
arbiter.
No position.
