Tuesday Evening 15 June 2010
Just when it looked like the trading range was alive and well after Monday’s
failed rally at the high end of the range, and the poor close suggested further
weakness into Tuesday, price reversed course and embarked on a steady rally
into new recent high ground.
What do we now know? We know we have to be flexible, at all times. What
was expected as a retest lower became a turnaround. The rally was the fifth
day with a strong close. This is the first time for a five day counter-trend
rally. Normally, counter-trend rallies last 1 to 4 days, so today marks a
change of behavior to the plus side, for now. The close is the highest for the
month of June and the highest for the past four weeks, another plus to the
upside.
Look at the weak close from Monday, second to last full bar, and the weak
close three more bars earlier. Twice, price closed weakly, and twice, price
failed to go lower, but reversed and made impressive rallies. All of these
gathered facts tell us not to be short, which of course, we were not. We were
long going into the high of the range on Monday, but accepted profits prior
to the turnaround and the lower end close.
The momentum has shifted. Just a day earlier, it looked like the intra day
trend was to turn down. The current rally can run into resistance at the 1020
area, not too far from Tuesday’s close. 1020 is the close from the 6 May
huge decline day and also the high of a small bar day that led to another
sharp drop in mid-May.
What do we not know? We do not know for how long this rally will continue.
Mention was made that the kind of volatility the market was showing is often
a form of distribution, selling by strong hands into weaker buyers who are late
comers. [See S & P – The Message Of The Market Is Clear, click on
http://bit.ly/9TJdpn, fifth paragraph]. What will be key from this point on is
follow-though.
If the rally is to continue, we need to see increased volume on rally bars with
upper range closes. This will tell us that buyers remain in control. If that does
not happen, caution is warranted for longs. If any decline is controlled with
smaller ranges and less volume than the rallies, it may be a buying opportunity.
Should any decline develop with wide range bars and increasing volume, it could
be problematic for the upside.
Is there a clear direction to recommend? No, at least not until developing
market activity shows HOW the then direction is unfolding. Nothing can be
taken for granted.
