Thursday Evening 3 December 2009
Usually, a small range at a high is a warning signal. In fact, we coincidently
addrssed just that in thearticle on Silver, Silver – Lining May Be Fading,
discussing the daily chart. Yesterday’s small range high, and under mid-range
close of the bar showed sellers won the battle that day. Volume was light, once
again, reflecting more of a lack of demand than anything else. Still, when any
market exhibits signs of weakness, it is an invitation for sellers to come in and
take advantage. Wednesday was also a failed breakout to the upside, giving
more reason for sellers to take note.
Today. Today price made a new high for the rally, but one that was short-lived
and failed. Price began to drift lower, and it stayed range-bound throughout the
trading day. It looked like it could be yet another non-event, but during the
last hour of trade, the momentum for price to go lower gained speed, and a
little more volume. This produced what is called an Outside Key Reversal [OKR]
day when price makes a higher high, lower low, and in this case, a lower close
relative to the previous day.
An OKR is usually a significant event, one that can turn a trend, and it is a
technical sign familiar to even traders, so the whole world can see what
transpired today. There should be some downside follow-through on Friday.
We say “should,” but the market can do anything. If there is more downside
tomorrow, this could be the beginning of a correction, at a minimum. One
indication of how weak or not so weak this potential sell-off may be is how price
responds to the 1092 area, a minor support from an intra day trendline. If that
holds, this potential decline will go nowhere.
We could try to impress readers by saying, “This move can go the 1068 area,
even to 1025!” But first, it has to break 1092. Like we have said before, to
make rabbit stew, first you have to catch the rabbit. Short positions were taken
on the close when the lower closing price confirmed the breaking of the 1102
support, and also created the OKR day. We do not know how far price will
decline from here, or even if it will decline at all. All we can do is follow the
market activity and act accordingly.
“Anything can happen” are words one should be aware of every trading day.
In the S&P market, given the ongoing support of Federal intervention to prop up
this market, the decline on Thursday could also turn into a shakeout.
What is a shakeout?
It is a large price move, up or down, that recovers lost ground quickly. If there
is no follow-through on Friday, and if price rallies back throughout the day, this
will have turned into a shakeout, and it will be yet another false start, of the
many since August, that can spell a correction, or even a turnaround. What
this potential has going for it is the age and character of the present trend. It
is a tired one, and one that keeps getting shorter and shorter in rallies. All that
is lacking is supply.
What is supply v selling?
There can be selling in a market every day, as a matter of course, without
there being any supply. When volume increases, and previous support points
start to give way and do not recover, THAT is supply. It is a different kind of
selling activity, one that has bite and turns trends, as well as continues them
once underway. As of the close, while the highest volume occurred on the
decline, it is too soon to know if the selling was a form of supply, and that we
will not know until tomorrow when everyone see how price acts for the end of
the week.
Support of 1102 was broken, but it is considered minor support, just like 1092
is. The primary support is at the bottom of this three-week trading range, the
1025 area, but there are layers of support in between to watch along the way.
Short, the S&P.
[If anyone still has stocks that are not performing well, while the markets have
been making highs, time to jettison them before they get worse. The warning
signs discussed here is also an indication to start taking profits in stocks held,
and/or move up protective stops to preserve any existing gains.]
