Tuesday Evening 9 November 2010
Markets are always reacting or retesting previous support/resistance areas, on all time frames. The previous April highs were known to be
potential resistance, the 1216 area. Price reached the 1224 area,
slightly higher, but stalled. Although trend lines are always drawn as
straight, the true support and resistance points are more of an area,
and not in a straight line. This is a way of saying that 1224 is true
resistance as a wavy line, for the straight line from the April highs was
What is important to note about Tuesday's is that while it only made
a 25 tic higher high, the close was weak and under the previous two
trading days. Tuesday was one of the weakest performances in the
S&P since the August lows. A look at the daily chart shows Trouble
spelled with a big "T."
The great aspect of charts is their ability to express the proverbial
1,000 words in a picture. This is the first time since the August lows
that price reversed and closed under previous days after making a
new high. The "new high" needs to be qualified, for it exceeded the
previous high from last Friday only by 25 tics, a mere blip, but not so
What that 25 tic new high tells us is that there was zero buying
strength above the Friday high, and zero buy stops above the market.
This is a clear example of a lack of demand that kept price from going
higher, and a lack of supply, no sellers to take advantage of the lack
of demand. However, what a lack of demand does is invite the
potential for supply, [sellers], to step in an take over, and we saw that,
The all important question is, are we seeing supply here? The
potential for a "yes" answer just grew. We added a trend line off the
recent lows to show the market has not yet broken any support, and
this is where the key element of retesting enters.
HOW the market retests the highs from Tuesday will be critical. If the
rally bar(s) are small and volume decreases, it will confirm that demand,
[buyers], is spent. Bears will see this and become more aggressive in
their selling efforts.
The intra day 60 minute chart lends some credibility to trouble spelled
with a little "t." Firstly, there is recognition of the trend. It is still up,
although the hourly trend could be at a turning point. In addition to the
trend, we chose this chart because it shows how the largest volume bar
of the day occurred at the lows. The bar's range was wide, showing
ease of movement on the decline. The last piece of information for
any bar is the position of the close, for it tells us who won the battle,
buyers or sellers?
Because the close was in the middle of the range, it was a draw
between buyers and sellers. If left at that, the true story of the battle
would be incomplete. The large volume indicates another battle
between buyers and sellers exchanging effort. Because of the high
volume, the position of the close, mid-range, is NOT a draw, in this
instance. Instead, it indicates that buyers stepped in and stopped
the effort of the selling onslaught and prevented the close from
This can be viewed as a victory, of sorts, for the buyers, but...and
so often there are many qualifiers in most circumstances, the
"buying effort at the bottom" could be short-covering, too, and not
new longs. This is why observing HOW the market responds to
Tuesday is so important to elicit clues as to seeing a change in
trend just getting underway, or maybe just a shakeout, getting rid
of weak longs and trapping top pickers looking to be short, just
before resuming a rally higher.
NMT! [Needs More Time]. Resistance at the highs, support is
found at the vertical demand bar from 3 November.