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S & P - From Patience To Consternation. Whoa To The Downside?

Monday Evening  22 November 2010

 There is no "Patience, Part Three."   The first chart comes from
yesterday's comment because it shows the resistance area, with
1206 as the upper range, and it turned out to be the overnight high
from which price sold off, once the day session opened.

S&P 60m 21 Nov 10

 The daily chart shows how price opened overnight on the highs, at
1206, the resistance range high, and then proceeded to sell off with
downward ease of movement.  We can see the close was upper end,
but let's look at how market activity developed in real time, at the time.

S&P D 22 Nov 10

 There are the overnight highs on a 60 minute chart, followed by the
downward ease of movement putting the sellers clearly in control. 
What makes it more pertinent is the fact of from WHERE the failed
rally was coming...the expected 1206 resistance.  Also, as price
declined, it took out the previous support low at 1187, making a lower
swing low.

  Once a move like this gets underway, and price has dropped sharply,
the question always is, where to get in?  The markets are like a puzzle,
and we, as traders, get to put the pieces of the puzzle together, based
on factual market observations, as were just presented in real time.  

 Did it make sense to sell earlier?  Well, there was the issue of the
sell-off from the 19th, the 1187 area that turned price around, making
that low potential support.   Plus, from the low of the 16th to the new
recent high at 1206, a half-way retracement was now 1188, making it
a potential support that dovetailed with the low of the 19th.  So no, we
needed to see evidence that the identified potential support would
not hold, and the chart shows they gave way.

 All the elements for going short were present.  We waited for a rally
to an intra day resistance around the 1192 area that failed.  Once we
saw that price level print and price start to decline, we went short at
1190, using the failure as confirmation, and knowing it was a weak rally.

S&P 60m 22 Nov 10

 The intra day activity used to go short was taken from a 10 minute
chart on both the S&P and SPY, the cash symbol.  However, price
did not then continue lower.  Shortly after, the weak rally high of
1193 was exceeded on an unexpected rally, and that prompted an
exit.  Because we chose the 10 minute chart for timing the entry, we
also used it to exit once the reasoning did not hold.  What looked
to be promising began to dissipate.  The negative price environment
did not, but the strength of the rally was not in keeping with what had
preceded.  By the close, much of the downside had been erased.

 A loss was realized yesterday, and another little loss from today,
but that is a part of trading.  The puzzle can change as new pieces
are added, pieces not previously available.  The picture has become
a bit more muddled.  Volume increased on the decline, but there was
no follow-through, and that shifts the effort to buyers for holding the
sell-off from turning into a rout.

 We are now likely to see a trading range affair for the rest of the
holiday-shortened week.  Support and resistance remain in place,
1206 and 1171.  As we said yesterday, Anything Can Happen, and
that includes a market that trades up, then down, then nowhere as
a result.

 This kind of rally- fail, decline-fail means the battle between buyers
and sellers has not been resolved.  It usually then takes a few days
for the struggle to be resolved as one side finally gains momentum
over the other.  What we can add is that if the next decline is weak,
it could end the down trend on the hourly chart.  Of course, price
can also remain in trading range, and cause consternation for everyone.

 The rules were in place for making a market decision.  The first
one did not work.  The second one did not work.  One of the most
successful traders ever has said, no matter how many times he
takes a loss, following his rules, he knows he is closer to getting a
winner.  One cannot let a previous decision interfere with the next
one.  We are now two steps closer.

 On the sidelines, and waiting for the next signal.

S&P 60m2 22 Nov 10