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S & P - Market Showing Weakness. Needs Downside Follow-Through.

Friday  14 May 2010

 The market showed the kind of weakness in Thursday's rally we wanted to
see, within the down trend, to warrant a short position.  The previous two
trading days had smaller ranges and rallied on decreasing volume as price
approached anticipated resistance.  Yesterday, price rallied to a slightly
higher high, but as the end of the trading day neared, began to fall on
increasing intra day volume.

 An important point to make is in noting the first sell-off low from contract
highs, the second bar after the 1216 high.  The low that day, 28 April, was
1176.75.  The rally high from yesterday was 1174.75.  This leaves a little
space of 2 points that the rally could not fill.  That is a subtle bearish
implication, showing the market rally was weak, in that regard.  There was
more.

 We had 1175 to 1185 identified as a zone of resistance, [see chart with 
horizontal lines, S & P - Rally Into Resistance,].  The small range rally on
decreasing volume was unable to reach that area, and that, too, tells us the
character of the rally is weak, and it should lead to a resumption of the
down trend.  Next chart.

 

S&P D 13 May 10

 

 This is a 30 minute chart that shows how narrow the bars are at the high,
contrasted by the wider range bars when price declines.  The day session
high was 1173.  Around 9 a.m., CST, price made a low, 1161.75, and then
rallied to close at the upper end of the range, [the bar is located in the
middle of the session].  That activity had to be respected  as a show of
strength.  We waited for a wide range bar with a low end close, underneath
the trading range ,to confirm a resumption of the down trend was likely
underway, and that was a place to get short, third bar from the end.

 What we need to see on Friday is continuation of the exhibited weakness. 
The expectation is for a retest of the lower levels from last week.  The initial
support target is the 1141 area.  How the market gets there, if there is a
decline, will tell us the likelihood of where price may eventually go.

S&P 30m 13 May 10