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S & P - Facts Show Market In Transition. Weekly Trend Still Up, But...

Sunday Evening  12 June 2011

 It has been a while since we wrote on the S&P market, primarily
because it has been difficult to present a clear picture, until recently. 
The weekly and daily charts tell of a market in transition, daily, and
the facts of the matter may bleed over into effecting the weekly, but
that remains to be seen.   We tend to follow
the sage quote from Lao Tzu"

 "Those who have knowledge do not predict.  Those who predict do
not have knowledge."

 We always contend that the best source of determining information
comes from the market itself, and the reasoning is that the last price
reflects the cumulative thinking of all market participants, the ones
who count.  Opinions from those not in the market do not matter for
they are purely rational conjecture.  With that as a preamble, we
proceed to the market facts.

 Starting with the positive, price remains above the primary trendline. 
The last swing low, in March 2011, is above the last swing high in
April of 2010, and this space between the last swing high and swing
low is known as bullish spacing, a sign of market strength.  Since the
January  2010 low to the May high, price corrections have been
relatively shallow, and staying well above a 50% correction, another
sign of strength.  The current swing low, which has not yet ended, is
above the last swing low from mid-April.

 Finally, the week just ended was a very small range, and from that
we can surmise that buyers were meeting the effort of sellers to
prevent the range from extending lower.  The fact that price closed
mid-range the bar also indicates a draw between buyers and sellers. 
What makes this a plus is that sellers are supposedly in control, as
price has been declining that past six weeks.

 These are observable facts, and the facts lead to the conclusion
that the weekly trend remains up.  There is one fact that is negative: 
the momentum of the last high has shortened in net gain, and that
shows the strength of the really has weakened.  The operative word
is "weakened," not ended.  It takes time for a turned to change,
particularly for the larger time frames.  As to any weakness, we go
to the daily to help determine where the weekly may eventually lead.

 

 

S&P W 12 Jun 11

 Here, the story is decidedly different.   The shortening of momentum
mentioned in the weekly can be seen in the daily with greater detail. 
One important fact that most overlook is the level of volume leading
up to the high was less than the volume that has attended the reaction
downward since the beginning of May.  Because of the change in lead
month from Jun to Sep, that volume does not show here.

 A similar channel has been drawn on the daily.  It is apparent from the
loss of  momentum in the rally that price failed to make it to the top of
the channel as it did in February, and that is a sign of weakness.

The number of days spent correcting from the swing highs is
indicated under each swing low.  From the May high, there was a
labored decline, lasting 18 trading days.  It was during this period
there was little to discuss for the decline did not change the trend,
but there was no obvious point at which to buy.  Then, in one day
a fast turnaround occurred, leading to the rally into June.  The
problem with the rally was the low level of volume.  It said there was
little demand behind the effort, and just as quickly as the rally
began, it ended much more dramatically and with a greater increase
in selling volume.

 The current swing low, seven trading days down, shows greater
ease of downward movement, [EDM], another sign of weakness. 
This current sell-off also accomplished two important additional facts. 
It broke the daily support trendline, and it also went under the swing
low formed in mid-April.   This is the first time the S&P made two lower
swing lows without an intervening higher swing high, and it represents
a change of market character.

 These factual observations from the daily chart show how an inability
of a market to reach the upper channel can lead to greater weakness,
and it puts the weekly trend at risk.  However, until that happens, the
weekly trend remains up, and that is an important fact not to be
forgotten.  We always use the knowledge at hand as a market guide,
and there then is no reason to "predict" what may happen.  It could
well be that there will be an important buying opportunity is
developing, based upon weekly data.

 It can be said that the trend in the daily time frame has changed
from up to sideways.  What becomes important now is to watch the
character of the next rally, from wherever the current low ends.  If
price is unable to rally to the half-way retracement, around the 1302
area, it will be a shorting opportunity, and it will be a signal that the
weekly trend may be changing from up to sideways, as it continues
to weaken.

 All of the intra day trends are down with no signs of a turnaround,
so there is NO REASON to be bottom- picking, "predicting" that a
rally will follow.    Those smaller time frames have to develop and
prove that a turnaround is under way.  Only at that point can a buy 
consideration be made, and if it conforms to the weekly chart, it may
be an important buying opportunity.

 That said, there is not much to do, something considered an
anathema for traders who are always looking for the next trade. 
There is a reason why it is said that the best trade can often be no
trade at all.  This is one of those times, based on the facts presented
and the knowledge gleaned from them.

 

S&P D 12 Jun 11