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S & P - Trend Remains Down. Intra Day Activity Sending Mixed Messages.

Thursday  20 May 2010

 This has become a difficult market within what seems to be a downtrend. 
After several days, since the 13 May reaction rally high to 1170, price has
clearly been dropping, but the net declines have become a bit smaller on
increased volume effort.  Within the downward slanting channel, we have
drawn some horizontal lines at each swing low. 

 The daily volume over the last four trading days has increased, yet the net
downside results keep  shrinking.  What that says is for the increased effort,
volume, there is less ground gained when there should be greater gains
resulting from the added effort.  From the 1113 low on the 17th, price made
an impressive rally to 1147.  It was short lived as the ensuing decline
steadily eroded those gains into yesterday's sell-off low of 1098.  Price
broke 1100, but the rally back to 1118, just like Tuesday's rally, turned the
intra day trend, on a smaller time frame, up. 

 It looks like price may rally to the upper channel resistance line, but when
overnight activity is added, the opposite happened.  Next chart.

 S&P 60m 20 May 10

 The overnight activity has been added to show what has developed
pre-opening for Thursday's session.  The low from 7 May, 1090 area,
becomes potential support in the future, which is what the horizontal line
represents.  It converges right in to the support lower channel line.  That
lower channel line represents an oversold condition, which may act as
support.  As we write, it has been holding.  However, a report came out at
7:30 a.m., CST, and price dropped even further, to 1085.

 What to make of all of this?  We have been on the side lines since
covering around the 1130 area, and the conflicting intra day activity had us
looking for a retest rally, perhaps to the 1150 area, but price is over 60
points lower. 

 What happened?

 The focus was put on how the intra day activity kept showing a resiliency,
but also an inability to hold the gains.  Shorter time frames are subordinate
to higher time frames.  The daily time frame did not give any indication of a
market turn.  This is an example of how putting one's focus on the wrong
time frame can lead to a wrong read of the higher time frame.

 Price is in another zone of support.  Odds favor the 1080 area holding, at
least initially.  One cannot sell into the proverbial hole, for the risks are too
great.  Our expectations are for a trading range to develop, but we have
maintained that over the past week.  Instead of letting the larger time frame
be the compass for price direction, an opinion, based on smaller time frame
activity, colored what MIGHT happen, as opposed to what WAS happening.

 The larger market message has been clear.  We listened to the static and
missed some opportunity.  The trend is the most important piece of
information.  How many times has that been stated here?!  See how easy it
is to get sidetracked?

 For now, we are waiting for some kind of anchor from which to take a new
position.
 

S&P 60m+ 20 May 10