Tuesday 8 September 2009
Deja vu…sort of. After the short monthly range of August, just explained in the
previous article, a sure sign of weakness, the first trading day of September
showed strong volume selling. Looking at the chart, the labeled failed probe on
the hourly chart is a negative factor, stressing the importance of the monthly
chart sign of weakness.
The high of 1 September, accompanied by a sharp increase in volume, makes the
1027.75 high a point of resistance. The 60 minute bars are marked to show the
strong selling down to the 1000 level. One can see what follows…a drifting,
sideways market. Where is the follow-through? An opportunity for sellers to exert
control, wasted. No more selling? Price will go higher. A late rally on the 3rd of
September led to the higher prices of last Friday when price closed at resistance at
1015. That, too, failed to hold.
The fact that price could not retreat away from resistance was a clear sign not to be
short over the weekend. Today’s 1100 tic rally attests to that simple assessment.
What is interesting is that the rally of Tuesday stopped just under the resistance
area, the horizontal line shown on the chart. Normally, one would expect a pull-
back from the resistance area, where the high volume sell-off started.
It is apparent that price hovered just under resistance, absorbing whatever selling
efforts came into the market. The lower volume says there was not much demand
behind this rally. A lack of demand will “normally” lead to supply selling coming
into the market. As is apparent, there were no sell-offs of any consequence.
Sellers have been AWOL since 6 March 2009.
Why?
This has been a Fed-muscled rally using Permanent Open Market Operations,
[POMO], to keep price from falling. The public has not created this rally. They
remain in financial shambles from what has transpired since the Fall of 2008.
Institutions? Nope. They do not have the financial wherewithal to pour the kind
of money into fueling this rally. The Fed has been using POMO to feed banks
money to invest in stocks and deriviatives, the same kinds of vehicles AIG used
that led to their collapse.
But wait! AIG is one of the leaders behind the current rally. Bank of America, Citi,
all the failed dogs are keeping this rally going. Normal? There is nothing normal
going on here, and the Street knows what is going on. Who is going to fight the Fed?
All we can do is keep reading the market activity and use a best efforts response to the developing market behavior. It is hard to buy or go long in the face of
overhead resistance, but all along this Fed “rally,” resistance has meant nothing.
This can only go on for so long, and as was seen by the collapse of AIG, et al, this market has the potential to face the same fate.
The latest rally came from weakness, not a “normal” source for an up move, and
from the middle of a broader trading range. The current price level remains just
under resistance and still within the broader range, so how can one be a buyer
under these conditions? Under “normal” conditions, it would be an invitation for
risk exposure.
We are playing the S&P market carefully, and we see no opportunity that makes
sense to buy weakness in the middle of a trading range, and for sure, no way to go short.
Biding our time, waiting for a defined opportunity.
