Sunday Afternoon 26 June 2011
The stock market is in the process of retesting important support.
We have an array of charts to convey a harmony of what may be
developing as a buy opportunity. As always, we turn to best source
of market information, and it comes from price and volume activity
generated by the market itself. We start with a monthly chart, which
is not final until later in the seek but, the end of the month is close
enough to at least be aware of this higher time frame, for it is more
controlling than the weekly.
Volume has increased the past two months, noted by the last two
red bars at the end of the volume portion of the chart. This is the
first lower low since the high, last month, and it keeps this correction
in a first degree, that is 1 to 4 months. The support trendline off the
recent lows has not been violated, and there is still spacing from the
last swing high. Spacing is a current low holding above the last swing
high, and it is a sign of market strength.
The monthly trend remains up.
We see the same lines drawn on the weekly chart that are holding.
An extra horizontal line has been added to reflect the last swing low
from March 2011. What is interesting about this chart is the clustering
of closes for the past three weeks. This shows a stand-off between
the forces of buyers and sellers at a point where sellers should have
Volume increased last week, but note that the increased selling effort
did not take price below the previous week by very much, and the
weekly close was almost unchanged. Here again, sellers have been
in control, evidenced by the lower end closes for each of the last four
weeks. While the selling effort increased, the second highest volume
since April, there was zero downside progress made. What this
suggests is that buyers were meeting and matching the effort of sellers,creating a closing balance for the past three weeks.
A point to remember is that from balance, the markets move to
imbalance. We could see a directional move this week, up or down, or
price can remain in a controlled range and show another cluster close.
This is the eighth lower trading week, putting the weekly chart in a
second degree correction mode, but it has been holding above the
important March low.
We see the trendline holding, spacing from the last swing high, and
price holding the last swing low, all signs of an upward trend, with a
beginning sign of some weakness by a second degree correction.
This 8th week down has exceeded the 7 weeks it took to rally, so the
time factor gives a small edge to buyers in that regard.
The daily chart shows the weakest of the three time frames, and
it also shows a sideways direction, a change in trend from up to
sideways. We drew an oversold trendline, slanting down from the
lows, beginning in May. Most of the activity for June has put the
S&P in a deeper oversold condition, but as with the monthly and
weekly, the downside progress has been arrested as price moved
sideways and just regained the oversold trendline.
What is telling on this chart are the two highest volume days, both
red bars indication price was lower in close than the previous day.
Both high volume bars were wider range to the downside, showing
ease of movement lower, and the closes were low end, showing
sellers winning the battle each day. However, when the question is
posed, what were the rewards for the seller's efforts on both days,
one would have to say none, in the first instance, and a strong close
in the second one. The strong close, second bar from the end, tells
us buyers were in control. The close was lower than the previous
day, but it is results that matter, and the buyers were much stronger
at this recent low level.
This is the critical area for sellers to reassert themselves and force
price to continue lower, or this is where buyers are able to regain
momentum and turn price around, creating a selling opportunity. Both
the monthly and weekly trends remain up, and the daily is successfully
working off an oversold condition.
The daily is showing greater buying results than selling results, but
anything can happen, so confirmation is required.
We now move to a 180 minute chart, three hours per bar, and right
away, we see two failed downside probes on the 16th of June. This
creates potential support, and a horizontal line is drawn to show where
price is likely to react positively, if the market direction is changing.
There is a successful overnight retest on the 19th, again on the 23rd,
and price held on the 24th for the third time. What the market is also
showing are three consecutive higher lows, and that is a positive sign
for buyers. Adding strength to that conclusion are the widest range
bars are all to the upside and against the down trend. In a weak
environment, buyers are showing up and controlling the down days.
On the 23rd, the highest volume bar shows the strongest rally in
terms of a range up. When you see a wide range bar with sharply
increased volume, the range will be defended. On Friday, price sold
off for four consecutive lows, but the last bar of the sell-off, second
from the end, showed no more ability to continue lower,and it
stopped at the low of the range from the up bar of the 23rd,
buyers defending that price level. The comparative volume between
Thursday and Friday shows a decrease, and that means selling
pressure was drying up as price retested activity from the 23rd.
Moving to an even smaller time frame, a 30 minute chart, we see
another failed probe on volume lower than the volume that led
directly to that low. Later in the trading day, there was an sharp
increased in volume activity, as price was rallying away from the
lows. You can see the greater detail of how that high volume rally
area is stopping Friday's decline, and there is another sharp
increased volume rally late in the day as buyers stepped up and
bought all the offerings of the sellers at a support level.
All in all, if buyers can continue to hold the efforts of the sellers, as
buyers have been demonstrating, then we are more likely looking at
a turnaround down here, rather than a resting spell before the
downside trend continues.
What is needed now is confirmation in the form of wide range bars
up with strong closes, on increased volume, or the opposite, where
sellers take back the momentum lost to buyers. There need not be
any guessing as to the outcome, for we have a slew of clues that just need confirmation to take action on the buy side, or a negation of the
positive to expect lower prices this week or next.
There is the 4th of July holiday coming up, so anything can happen.
Let the market make the final determination, and then react accordingly..