Thursday Evening 15 July 2010
It is really difficult to properly analyze a market that continually receives Fed
support during options expiration week when the Fed pumps money into the
system, an indirect support of the stock market. This is a fact that goes back
to 16 July 2009 and every options expiration week since. The “free” market
is not so free, what with the corporate federal government taking over so many
business-related functions, and with no opposition…certainly not from Wall
Street, the prime beneficiary of this Fed largess. It is the non-Wall Street
participants, [read that as stockholders, pensions, 401ks] that take the hit.
However much any faction may interfere, one thing can be said about the
market with certainty: it never lies. Reality may get overstretched, periodically,
but the “facts” eventually bear themselves out. Look at the volume during the
rally near mid-June, with so many green volume bars. Ostensibly, that would
be very bullish. Then, look at the bars at the top of the June rally. Notice how
they become smaller even as volume was relatively high. A lack of range
extension upside on increased volume is a red flag. The rally fizzled and the
market broke to new lows in July. The quality of the rally was lacking, near the
end.
Now we have the July rally, surprisingly strong,[why not when the Fed is backing
it], but note the volume this time. Volume is half of what it was in the June rally.
That brings us to today. It looked like price was headed south, but once again,
something prevented the downside from gaining momentum. That “something”
is anyone’s guess. So, we deal with what is.
We then look at the closes. They have formed a cluster, and we have written
about closes that appear in a tight range. It usually marks a turning point. Did
we mention how small the rally bars were leading up the the past three days, on
weak volume? Yet the market still rallied. Oh, well.
Another possibility for the clustering of closes is that the market could be biding
time in preparation to continue the direction preceding the clustering of closes,
up, in this instance. Based on the internals of the market structure, we are not
fully convinced that the rally has sustaining character, but one can never fight the
tape!
If there is to be a turnaround, the market will indicate by wide range bars down
that have poor closes and increased volume. The same is true of how a market
rallys: wide range bars that have strong closes and increased volume. We do not
see that here.
Accept no substitutes. [Currently, no position]
