Wednesday 30 June 2010
The weekly chart shows the likely direction for the market over the next several
months. It ain’t a pretty picture. For the here and now, price is teetering on
important support. The biggest problem with this support is that we are now
down here a few too many times, and the manner in which price reached the
support level is also problematic. This last time, the ease of movement has
been swift.
Will support hold?
Hard to say. It looks like not. Well, we say hard to say, but the handwriting
is on the wall. Support could hold and price rally, but it would be a
postponement of the inevitable: much lower prices. Because the 1035 area
has held, we will wait for confirmation that it is giving way. It is possible to
argue that the market may be oversold, but oversold is relative and can easily
become MORE oversold.
Back on 8 May, we mentioned that the large decline of 6 May would create a
trading range, [See S & P – Apply Some Simple Logic, click on http://bit.ly/aurqH9,
see third paragraph above chart at end]. Again, we emphasize that support and
resistance are areas, not absolute points, so there can be some penetration, but
price still holds the area. You can see that price has been in the anticipated
trading range. It is evident that the best any rally could do was reach a 50%
retracement, and that speaks to weakness in general, and it addresses why the
overall character of the structure shows weakness.
Bottom line for the near term is to see this support violated with conviction,
not just with lower prices, but also accompanied by increased volume. Until that
happens, there still remains the possibility of some kind of rally.
The previous rally high around 957, back in June 2009 was resistance, and it
will now offer potential support as price declines into it. We have also drawn a
channel off the April 2001 high, and it shows that there is a lot more room to
the downside. We are of the mind that price will be contained within this
channel for sometime to come, including rallies. Ultimately, the March 2009
lows should be retested, and that level is 665.75.
No need to be in a hurry. There is ample room downside to get positioned
while this tenuous support is resolved.
