Wednesday Evening 18 November 2009
“Sellers! Sellers! Wherefore art thou?” …in this mini-drama series of
“Who’s On First?” Buyers have the edge by virtue of the trend, but they
are not very strong. Sadly, sellers are even weaker. Doesn’t anyone
want to take control?
Once again, to best answer what is going on, let us examine our favorite,
most important piece of market information, the Trend! We talk about it
in almost every article, and with good reason. When you can identify the
trend, you know in which direction your trading effort extends, if you want
to be efficient and consistently profitable, on balance.
We talked about comparing the trend in different time frames earlier today
in a follow-up article on the Natural Gas trade from yesterday,
Natural Gas – Follow-Up. Some of our topic articles are more widely read than
others. We trade opportunities, not specific markets. When we write an article
about Natural Gas, we talk about technique, for we do not even know the first
thing about Natural Gas, not even the contract size. If one wants to learn how
to trade, trade opportunities. The market, any market, is just the means.
The point is, we provide pertinent information in each article that applies to
any market, Natural Gas, Wheat, S & P, et al, so do not let a particular market
seem of no concern because it is not your area of interest. A chart is a chart,
to echo a familiar refrain.
Back to the drama at hand. The daily trend in the S&P market can be called
up, and we would not stand in the way of anyone wanting to argue sideways,
or no trend. Moot issue at this point. Examining the intra day, 60 minute
chart below, the parallel lines are a channel drawn from the daily chart activity.
Note how the current price location has not even come close to approaching
the upper level of the trading channel. This indicates a tired, weakened
market. Not one to short, but maybe move up stops on longs, if long, at all.
[We are not.]
At the beginning of November, price even penetrated the bottom support
channel line, briefly. We have already addressed the quality of the market
condition in yesterday’s popular article about the S & P.
S & P – A Picture Worth A Thousand Words , so we will press on to other
areas for further examination.
The “Resistance” on the chart points to the primary supply channel line
above, and also to a new line drawn across the September and October highs.
When a market fails to reach its established upper resistance line, it is a
message from the market, as we said, a weakening of the trend. We drew
that second line to reflect the lower boundary of the advancing market, loosely
speaking because the “advance” is more of a crawl. What becomes apparent
to the discerning eye is that price is struggling to reach even that line in
making new highs within the current rally.
The third line, a horizontal one from the October high, shows how price is
barely staying above the previous swing high. The daily ranges from Tuesday
and Wednesday are small, reflective of a lack of demand and an absence of
sellers. Buyers retain the edge because the closes are at the upper end of
both bars, so whatever anemic selling there is is being absorbed by weak
buying efforts. It is exactly this kind of poor performance that sellers will take
note of and decide the time may be ripe to step up to the opportunity…
something sellers have utterly failed to do, so far.
Volume, noted by the down-sloping line, continues to drop as price continues
to rally, an incongruity that cannot persist for much longer. Either buyers will
come into the market in force, or sellers will. That is how markets function.
Any market, at any time. [Unless there is a balance between the opposing
forces and a trading range exists.]
It should be pointed out that the monthly trend, not spoken of much, and
hardly ever considered by the majority of traders, that trend is still down. Let
us draw that time frame into the discussion because it appears it may have
bearing on present tense market activity. [Know the trend in which you are
trading, and know the next higher time frame trend, as well.] To that, add
an occasional peak to the larger time frames, like the monthly, and four
times a year, the quarterly. They are very important.
Consider, the October 2007 monthly high was 1586. The March 2009 low
was 665. The difference between them is 921 points. Half of that is 460,
added to the low of 665 = 1125. Hmmm. Isn’t the recent high 1112, and
struggling? Absolutely! Sometimes the rules of horseshoes apply in trading.
Going back to the excercise above about a market failing to reach the upper
channel trendline as a sign of weakness, 50% of any range is a good guide
to gauge the strength or weakness of a rally or decline. If a rally is unable to
go above a 50% area, it shows inherent, relative weakness. In the instant,
the daily chart is struggling to get above the October highs, and limped to the
recent 1112 high, just under the monthly 50% retracement area. Price is
struggling on the daily and falling short on the monthly.
As in individuals, markets also have character, and as we read the messages
the market is delivering, the current character of the S & P market is not very
strong. Markets recognize opportunity and will act on them, evidence to the
contrary in this case. Not even the S& P can defy gravity. It may very well be
that political influences are keeping professional sellers at bay, until year end,
which is simply prolonging the agony and exacerbating the inevitable, but
results will show up, eventually, and this is a warning to not be lulled onto the
rocks by the siren call of a tired bull market. It is okay to miss the last
10-15% of a move. The risks of reversal are greater. [Think October 2007.]
The dollar weighs on the minds of most market participants, and as long as
it is allowed to flounder at its current lows, other markets are biding time.
That is what the tape seems to be saying.
Who are we to argue?
There are no reasons to be short, at least not yet. Caveat emptor.
