Monday Evening 8 November 2010
One thing that is axiomatically true is that the market will unfold as it
will, regardless of anyone's point of view, some of which may be right,
many of which are not. So, it is an interesting exercise to express
one's opinion on a market, and then watch and see how the future
unfolds. We have chosen an intra day chart, selecting a 30 minute
time frame, for no particular reason. It makes no sense to use a day
or weekly chart, because both were already covered, yesterday,
[See Crude Oil - At An Important Axis Price Line].
Compare your notes to ours, in the chart below this one. There are
no right or wrong answers, but some may be better than others.
What we see is a temporary trading range. The high occurred
during the Sunday evening session. There are three arrows that
show where support has formed the lower end of the trading range.
A trading range can be a resting spell for price to continue the
direction established before the range began, in this instance, up.
A lot of people look at a chart and see a bunch of vertical lines
moving up and down, but the lines do tell a story.
The first arrow marks the starting point of the developing trading
range. The second arrow shows a brief probe lower that held the
trading range low, actually confirming one was forming. Note the
wide range down bar just prior to the low and how the close was on
the low. What is to be expected is more downside continuation,
and price did go lower, just not by much and not for very long.
Here is what those two "lines" say. Price showed weakness,
creating the lowest 30 minute bar close up to that point and
indicating weakness. The second bar, the low where the middle
arrow points, made a new low, but closed above the low of the
previous bar AND above the previous bar close. This tells us
that just as it appeared that sellers were beginning to take charge,
buyers overwhelmed them and reversed the downward momentum.
There is another important piece of information, and it is found in
the volume, below. The green volume bar for the second of the two
under discussion, was greater than the red volume bar when price
closed at the then low point. The second bar is smaller; it has greater
volume, and it closed above the previous close. What these
observable market facts are saying is, the bar is smaller because the
buyers stepped in and stopped the sellers from extending price lower.
In fact, buyers did more than stop the sellers, the buyers overwhelmed
the selling efforts and absorbed everything the sellers offered, and
were STILL able to close that 30 minute session at the high.
Message: Buyers were in control at the lows. From there, crude oil
experienced the strongest rally of the day. It is important to know that
buyers are defending lower price levels.
What about the third support area, from Monday's activity? There is
a variation on the same theme. Once again, we see an even wider
range bar to create new lows for the day, right at support. However,
there are some qualitative differences, for those who only see lines.
The wider range for that bar tells us there was ease of movement to
the downside, which is why the bar is wider than the one at the
second arrow. Note two things: The position of the close off the low,
and it is off the low because there were some buyers down there.
Secondly, the volume, in red, was the highest volume of any 30
minute bar of the past three trading sessions, to include Monday.
We will explain that more, in a moment.
Unlike Friday's single bar low, [middle arrow], Monday's low, [third
arrow], went sideways for three more 30 minute periods. Where were
the results from all that effort? Why didn't the market go lower? What
the three added sideways sessions tells us that the highest volume
bar, just mentioned, was the result of buyers scooping up what the
sellers were offering. Sellers had three more 30 minute session
opportunities to make new lows, but it became confirmed that it was
buyers in charge, not sellers.
The clincher is the low of Monday's session. Price only went lower
by five tics from the previous low, and the close of that bar was on the
upper end of the range. Going only 5 tics lower tells us there was
nothing under the market...no stops, and no more sellers, more
important pieces of information. Finally, the close, while still in the
trading range, was the highest day session close, actually in over
It has not yet been confirmed if this is to be a resting spell prior to
price resuming higher, or the alternative, a turning point where price
stops moving up and eventually reverses down. Until there is a
declarative move higher or lower, the edge remains with the buyers.
We believe the market has imparted additional information over the
past two trading days, and we continue to maintain it is the prelude
to Act II. Time will tell.