Thursday Evening 1 July 2010
What makes today’s activity different from other recent days? A few things
are apparent, one is not. The close was near the high of the day and the
upper end of the bar, after the end of a 123 point break in eight days. This
close is only about 5 points lower than the previous day. What is not apparent
is the level of volume, for what you see on the chart is not the total for the day.
Thursday’s volume is the highest in two weeks, and it tells us the increased
level of buying was that of short covering. Taken together, this could lead to
a rally, or perhaps better said, a reaction rally.
Tuesday’s decline was a wide range bar, [third bar from the end], one that says
sellers were totally in control as price cut right through previous lows, most notably
the one of 6 May, the huge spill that took everyone by surprise, and the previous
low of the move in late May. Those two lows, 1056 and 1037, are the target for
where a reaction rally can carry. This market has been so weak, with zero demand
buying in evidence the past eight days, it may be the best the market can do.
Of course, there is no way to determine the quality of any potential rally.
Should one be stronger than indicated, the half-way retracement area is 1067,
and that is near the high of Tuesday’s wide-range decline at 1074, an area
expected to be well-defended.
Another tell, not seen on a daily chart, is the fact that the rally from the low
was 20 points, and that is the largest intra day rally since the April high. That
represents a change of behavior, a small one, to be sure, but when coupled
with the daily observations, gives additional credence to the expectation of
some kind of reaction rally. Also, the two largest volume bars, after the first
few hours of trade, are clearly to bars that were wider in range and high end
closes.
The market is clearly weak in character, and we now seek a point for where
any potential rally may end because the downside potential is for 900-950.
Plan accordingly.
