Wednesday Evening 21 July 2010
An editorial comment, first. Our way of looking at the market, reading
development of price and volume activity, is technical analysis at its purest.
We cannot know the level of understanding of readers who take the time to
read these articles, but the numbers are increasing. Regardless of the level
of one’s technical background, it is worth taking the time to understand the
points we make, for they are all based on what the market is communicating.
When you begin to understand that the market has its own language, it
becomes apparent that there is concrete structure that makes sense. It is
not always easy to read or uncover, but it is always there.
What is true of the S & P, the market that gets the most coverage here, for now,
is also true of individual stocks, or wheat or soybeans, currencies, metals, etc.
Someone who only follows grains may not be too interested in reading about the
S&P, but what we convey are market principles, expressed in price and volume,
and principles are unchanging in any market. On to the day’s analysis…
Just as we went to the sidelines after covering short positions, yesterday, we
jumped right back in when price stopped cold at a point of resistance. Nothing
is better than when the market advertises its intent. That was apparent when
price held at 1050 support on Tuesday, and it was equally true when price
stopped at a clear resistance level on Wednesday, around 1088.
Not drawn, but there is a supply trend line coming off the April June highs, and
that is where price stalled last Tuesday, Wednesday, and Thursday, the three bars
at 1100, just prior to Friday’s wide range down bar occurred, and extending the line
further to include today’s activity, the supply line contained yet another rally
attempt.
Back up one step and keep in mind that Tuesday’s wide range rally bar was more
from short-covering than it was from new demand buying. That point alone says
the character of that day’s rally was not strong. When a “less than strong” rally
goes into a resistance area, expect the resistance to be stronger than the effort to
reach it. The details are better seen in the 60 minute chart because there were
more hurdles for buyers to overcome.
It is understanding the context of the the past tense of market activity that
influences present tense development that leads to future results/direction. Case
in point. In S & P – The Jury Is Still Out On This Rally, [click on http://bit.ly/aicSvL,
4th paragraph] where we drew attention to the clustering of closes and how they
can be turning points. In the third paragraph, mention was also made of the lower
volume attendant with the rally, indicative of a lack of buyers. Keep in mind, this
developed right at the supply trend line discussed above.
Look at the wide range bar down on activity of the Friday the 16th, the same bar
where we went short. That was what is called a vertical supply bar…vertical
because it is such an obvious wider range, volume increases, and in this case, the
close broke the low of the trading range…and supply because it is to the
downside. A vertical demand bar would be one to the upside. The high of that bar
was 1089. Look at where price stopped on Wednesday’s rally. Right at the same
price level. The vertical supply bar high acts as resistance, and it was. It was also
the the same resistance level from the supply trendline on the daily.
From the start of the day session, the 8th bar from the end, price moved quickly
away from resistance and closed poorly, on increased volume. Coupled with the
previous observations, it was clear that the market would not hold, and these are
the reasons why another short position was initiated at 1080,7th bar from the end.
For the next four hours, rally attempts were weak, unable to get above 1082.
Weak rallies lead to lower prices, and in the next hour, the sellers stepped in on
increased volume and the weight of the market gave way. This is an example of
doing one’s homework and being prepared to act, depending on HOW present
tense market activity developed.
We took past tense activity, monitored how developing present tense activity
unfolded, as just outlined, and that led to future expectation of lower prices. The
market generated activity: price, the position of closes, and volume is the most
reliable source of information.
All of this, and Friday’s analysis, led to short positions due to present tense
market activity. What is not as apparent is the fact that in both short positions,
once in, price hardly moved against the position. That speaks to the quality of
the information extracted, and acting on it at the right time.
Short at 1084 for the above reasons.
