Monday Evening 5 July 2010
In the last article on 1 July, mention was made about a rally potential, but on a
“maybe” basis. None, of any consequence developed, and what was described
as a weak market is living up to that characterization. There is little need to get
too analytical here. The trend has turned down, for some time now on the daily,
and more importantly, also on the weekly. Price remains in an oversold condition,
and the caveat issued last time about oversold conditions is that they can become
MORE oversold. Always wait for a sign from the market before deciding a change
has occurred.
So far, none has.
We still see the low from Thursday, third bar from the end, as important for the
near term. The range was somewhat contained, volume increased, and the
increased effort rallied to close near the upper end of the bar. The only force that
can close a market on the upper end of a bar is stronger buying over selling
efforts. One would not expect to see buying stronger when price is making a new
low, so that raises a red flag of caution for downside continuation. Keep in mind,
price has been down eight days without any kind of relief rally.
A closer look at a 60 minute intra day chart shows that the market has really
been moving in somewhat of a sideways direction since the 29th of June. We
also see the highest intra day volume occurred on last Thursday. There has
been no downside follow-through, and that day could be evidence of stopping
volume, at least temporarily.
“Could be stopping volume” does not mean that it is until the market confirms
it. Remember, the market HAS to confirm every aspect of its activity before it can
be established as true. Given the weak character of price behavior, it looks to us
like last Thursday’s low could be exceeded, and if it is, we would expect it to be
brief, with a counter-trend rally then getting underway.
If that turns out to be what develops, THEN we will be in a better position to gauge
where a counter rally would likely fail, and THAT is where a short position will be
entertained. The obvious first level of resistance is the 1035- 1040 area, where
price clearly broke a support range. Previous support becomes future resistance.
Elementary, as Holmes would say. No place to pull the trigger, yet.
