Tuesday Evening 30 November 2010
The focus today will be narrow and simple. We have been
anticipating an eventual breakdown lower and discussed the trading
range, [See S & P - Go To The Mattresses!, click on
http://bit.ly/fqbUw0, last few paragraphs after second chart, and third
chart with comments,]. You can see that the intra day rallies have
been showing lower highs over the past few weeks, an indication
that the demand has weakened. We even stated a potential
objective at 1120 - 1125.
On the 60 minute chart, we show two important elements in the form
of price and volume, the key factors behind all moves. After 11 days
of trading sideways, we know that price is moving further along the
Right Hand Side, [RHS], of the trading range, and that means a resolve
is getting closer.
The chart shows overnight activity from Monday, but on the day
session open, price gapped lower, near support and on strong
volume. Tuesday's volume was the highest since 16 November.
The importance of volume is a measure of effort expended. The
greater the volume, the more exchange going on between buyers
and sellers. The question then is, what was the reward for all that
effort? Did it favor sellers or buyers?
For all of the effort, price held above yesterday's lows. The highest
intra day volume came near the close, a time when smart money
makes a move. That volume bar is red, second from the end, yet
price did not trade below the half-way point of the initial two 60 minute
high volume up bars at the opening of the day session. Why couldn't
sellers make greater headway at such a critical area?
This is why we say every market has two sides, and nothing can be
taken for granted, including our downside 1125 area objective. This
trading range has all of the elements of weakness, of late, yet today
could lead to a surprise on Wednesday.
If today's developing market activity is sending a message, it could
be more important than most traders may realize. There would be
little surprise if price fails and goes lower. If the market is able to
rally on Wednesday, contrary to seeming weakness, and there is
ease of upward movement on increased volume, it could change
We do not know how price will develop on Wednesday, for the future
has not yet happened. All we can do is judge the market's message,
and it speaks most clearly through price and volume. Rather than
guess how Wednesday will develop, we will watch it closely and let the
market be our guide.
The other side of an objective of 1120 - 1225, lower, is recent 1220
highs, and extending all the way up to the 1275 area. Those are
the possibilities. What is not known is the probability of either event,
up or down.
Let the market speak first.