Thursday Evening 3 June 2010
What does the size of a trading range mean? In an uptrend, it could mean
a lack of demand, or it could mean sellers overcoming buyers. Volume would
give a better indication of which is which. Looking at Thursday’s range on the
daily chart below, [ignore the last little bar as it is the start of the evening
session], the range is small, relative to the last few weeks. We can also see
that volume is one of the lowest in several weeks, as well. We attribute this
read to a lack of demand, and it is occurring at an important area: previous
resistance from last Friday.
What does it take to make a rally? Demand. Increased volume. What is
needed for a rally to break through a resistance area? Strong demand. A
wide range bar. Without them, sellers may take over. Thursday was not a
wide range bar, and volume was relatively weak and at a point of resistance.
The rally failed to take out last Friday’s key reversal high, which was a sign
of weakness.
This puts Thursday’s smaller range bar into a perspective that says, if price
does not rally, with volume, through the overhead resistance, this rally could
be in trouble. Big Trouble, or little trouble? That remains to be seen.
We can ignore the last 8 bars on the 60 minute chart for they are the evening
session. What the intra day chart shows is how price initially tried to rally
through resistance from the 28th, last Friday’s key reversal day. Thursday’s
early high reached 1105, but from then on, the market weakened, yet again
after a rally, and sold off almost 15 points to the 1090 area. The next four
bars after the low shows the rally going into the day session close and failed
to make new highs.
The message of the market is addressed here frequently. It is always subject
to change as new activity develops. We are seeing a higher swing low on June
1st, and that is a plus for a rally. The character of the rally for Thursday, [which
includes the Wednesday evening session], was newly added market activity,
and its message says the positive message from the higher swing low may be
problematic.
What we cannot know is if the trouble is minor, or of a greater implication.
As “luck” would have it, this mixed message leads us right into Friday’s
unemployment report. If price does not push through the overhead resistance
on wide spread and increased volume, the market’s message may be telling us
that more retesting of the 1060 area could be in store.
The good news is, we do not have to guess and take a position in advance,
hoping to be on the “right” side of the market. Instead, we know what signs to
look for that will tell us which way the market is heading and THEN go with the
momentum, IF we can find a relatively low risk entry that will give us an edge.
Waiting for the edge.
