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S & P - Rallying Or Levitating? No Supply Selling = Higher Prices

Monday  15 March 2010

 Last Thursday, the daily chart in our article showed the same resistance
line drawn below, S & P - Negotiating A Resistance Area, [click on].  That day's volume turned out to be the highest for the
week, but the net progress higher was not all that great.  Friday closed
about unchanged, [2nd bar from the right], again showing little upside
progress.  The last bar shows Sunday night into Monday morning activity
as this article is being written, pre-opening.

 We see price levitating more than rallying because the activity is not very
strong.  The rally bars are not wider as price rallies, and volume has not
expanded along with the rally.  What is missing is supply selling.  As a
reminder, supply selling is different from daily selling activity.  Every day
there is some form of selling activity, as a matter of course.  How does that
differ from selling activity?  Selling activity shows up in the form of wider
range bars to the downside, with a marked increase in volume activity.  The
closes will also be on the lower end of the bar's range.  Supply selling is
typically strong enough to take out previous support areas, whereas
everyday selling activity will not.

 If you look at the bars from 21, 22 January, you can see how the ranges
were wider to the downside,and volume was much greater, as price
declined.  This led to the largest correction in several weeks.  When you
look at the rally since 5 February lows, you see a clear absence of any
supply selling.  However, you also see a number of small range bars that
comprise the rally.  These smaller range bars reflect a lack of demand, not
enough buying effort to extend the range higher.

 The channel drawn off the 5 February low, connecting with the 25 February
low creates the lower line of the channel, and represents support.  The
upper channel line is drawn parallel to the bottom line, using the 19
February high between the two lows.  It acts as an oversold indicator, and it
is called a Reverse Trend Line, [RTL].   You can see how price has been
hugging it as it moves higher.  Right now, there is a convergence of the
previous resistance high and the RTL, where price has currently stalled.

 What we know for certain is this:  for as long as there is NO supply selling
entering the market, it does not matter how poor a showing demand makes,
price will continue to work higher, as it has been doing.  The downside to this is that it will not take much for supply sellers to enter the market and cause
price to go lower.  To date, the supply sellers have simply been unwilling to
press their case, and top-pickers are being punished, continually.

 As long as the bars down are not wide, buying breaks at support points has
to be the order of the day.  It does not make sense to chase this market and
pay up to get long because it is too vulnerable to breaks.

Proceed with caution.


S&P D 15 MAr 10