Tuesday Morning 26 October 2010
Monday was a failed probe to the upside. Price went higher,
ostensibly breaking out of the trading range to the upside, but the
rally was ephemeral, selling off early in the trading session. By the
end of the day, the low end close let us know that sellers were in
control. A look at volume tells us that there was no new supply
selling entering the market.
To clarify the difference between selling and supply selling, there
is buying and selling that goes on every day. What supply selling
is when there is a wide range down and volume increases appreciably.
This charting service does not show daily historic volume, but look at
the wide range down bar back in May, on the left side of the chart,
10th bar from the end. Volume on that day was 5.7 million contracts,
and the market broke sharply. That was supply entering the market,
not just ordinary day-to-day selling activity.
Compare the 5.7 number of contracts to the recent highest level of
volume below, in red. Volume that day, 19 October, was just over 3
million contracts, almost half the supply selling day back in May. The
point being made here is that there is still no evidence of supply
selling in the market, despite the weakness seen yesterday and
continuing into this morning's activity, with price down 700 tics, as
What does this mean? The daily trend remains up since the July low.
The intra day trends are now down, and they appear to reflect more
of a normal correction and not new supply. The Fed and political
interests in propping up this market may lead to a protracted trading
range for the balance of the year. No one has a clue as to how price
will develop, but it looks more and more that distribution is going on,
in preparation of a markdown in stock prices.
The edge remains in the bull's court, as it were, but any showing from
the buyers has become anemic, of late. Nothing to recommend, at this