Friday 5 February 2010
Throughout the rally from the last July correction, we maintained that demand
was relatively weak, but however weak, there was NO supply in the market to
stop the upward move. People can get confused between selling that occurs as
a matter of daily activity and supply selling. When supply selling enters the
market, the downside bars widen, volume increases, and previous support areas
are broken. Normal selling activity does not exhibit these characteristics.
The chart below points out several supply selling bars. You can see how they
widened going down, volume increased, and previous support areas, 1088 and
now 1062, have been broken. This is also the first time that a lower low has
followed a lower high, last week, after broken support levels. There was a
correction last July, but previous support remained intact, and the low was a
higher low, indicating that the trend remained up, at that time. That is no
longer the case in this change of trend.
We went short on the second wave down and covered half the position
yesterday, at 1071, for money mangement purposes at what was thought to
be minor support. It did turn out to be very minor, holding for about an hour
and a half before giving way to lower levels and a close at the target area of
1062, the “Dubai low” from last November. Overnight activity carried the
momentum lower, to 1050, as we write pre-opening, but price has been
recovering back to the 1062 support area.
The weekly and monthly charts have turned negative and lower prices are more
than likely. We see no ending action to the current decline. Corrective reaction
rallies can be expected, and we will be sellers on weak rallies into resistance
areas. There is no reason to be long this market. We have been saying it for
a few months now, due to the weak demand that could not sustain the
continuing rally into the January highs.
The next target area is 1025+/-.
