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S & P - More Than Knee Deep In. But A Respite Is Likely

Monday Evening  22 August 2011

 As always, when doing an analysis, be keenly aware of the weekly,
particularly since the melt-down two weeks ago.  It can sometimes
give a clearer perspective.  Once 1250 gave way to the downside,
and with emphasis, the trend turned down.  What stands out the
most are the two wide range bars from the start of August,
accompanied by the highest volume.   Such high volume usually
indicates a transfer of risk from weak into strong hands.

 With the highest volume, third bar from the right, despite making
a new recent low, the close was on  the upper end.  The only way
that can happen in a seeming price meltdown is for buyers to step
in and overwhelm sellers.  That is how a transfer of risk occurs. 
Strong hands scoop up everything panicky sellers are dumping
onto the market.

 The next step, after a kind of selling climax we just saw, is for an
immediate rally, and then to expect a retest of the low.  Each part
of that process imparts important information.  In the immediate
rally, how far did it go, and what was volume like, as a measure of
demand?  The brief rally from last week fell just short of a 50%
retracement, not bad, but volume was relatively anemic.

 The second part, the retest of the low, at least so far, shows how
selling pressure, in the form of volume, is much less than on the
preceding wide range bars a few weeks earlier.  Two weeks is not
nearly enough activity to say the process is anywhere near
complete, so this is just a preliminary view.  What we believe will
develop in the weeks ahead is more back and forth test and retest
activity.

 The concern for now is what may/can develop this week.  To the
daily, for that.
 

S&P W 22 Aug 11 

 For an overview, the first potential resistance for any rally will be
the 1200+ area from last Wednesday.  The 1215 area is a half-way
retracement, a bit higher than the 1206 high that day.  The much
stronger and more important resistance is on the 1250 area, +/- as
the horizontal lines show.  As was mentioned in the comments for
the weekly chart, expectations for test and retest activity, these
areas, with last week's low show how price can/may be contained.

 Last Friday was a lessening of the downward momentum, a sign
that selling activity may be spent, at least for now, and along with
Monday's also lessening of lower lows, coupled with an almost
unchanged close is an indication that a rally may be in store, at
least for a part of the current week.  Bottom-picking is never
recommended, and we are not suggesting one engage in it unless
you are very close to the market and can move adroitly.

 The information we discussed in the weekly scenario will show up
in more detail on a daily chart.  For now, under this  analysis, more
time is needed, and patience generally pays off by having greater
market clarity.

S&P D 22 Aug 11