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S & P - A Set-Up In The Making. Watch Develoing Activity For Cue.

Tuesday Evening  25 May 2010

 What could have gotten uglier for the bulls appears to have ended, at
least for now.  Price did reach the February low, forming a double bottom,
and they often hold the first time on a retest.  The daily chart shows an
interesting situation.  Ignore the last bar, for it is the start of the evening
session going into Wednesday's day session.

 The four bars preceding the last bar cover a range of 80 points, but note
the closes.  They cluster within a 14 point range.  We discussed the
significance of  a clustering of closes back in early March, [see Euro - A
Clustering Of Closes
, click on http://bit.ly/av4JQy].  They can signal a
turning point.  In support of that possibility, two of the four days have high
end closes, and that is an indication of buyers being in control.

 Note the position of the closes.  Tuesday closed just a touch higher than
Monday's close, and also above last Thursday's lowest close of the group,
and the move down.  This is letting us know that smart money is getting long
on these sharp price drops.  Smart money is trying to hide its hand, but the
logic of the activity just described shows the "tracks" left behind, which many
will not notice for what it connotes.

 We did not include a weekly chart, but the lows for this week have
shortened in net loss over the previous week, and the shortening of the
downward direction is an indication of a loss of momentum, even though
it seems the drop is more dramatic in impact.

 With this read of developing market activity, and concluding smart money
has been accumulating long positions, in addition to short-covering, we can
expect a rally.  The question is, how will it unfold?  It may be in one of two
ways.  One, a continuation higher, leaving little opportunity to buy, unless
one is willing to pay up or miss the rally, for smart money does not like
company, or two, a weak rally on Wednesday will tell us to expect retesting
of the recent lows.

 The good new is that we do not have to know how things will unfold 
beforehand.  All we need to do is watch how the market unfolds, knowing
at least a few possible scenarios, and then take action once the unfolding
develops.  If there is a set-up to take advantage of whatever takes place,
we will know how to react without having to guess.

 

S&P D 25 May 10