Tuesday Evening 7 December 2010
The market had gained impressive strength since last week's 1172
low that led to a 60 point rally. As we had given downside projections
to 1125 area, prior to the rally, we also just gave a potential rally to
the 1275+ area. What seemed like a higher probability to go lower
last week, that failed, the seeming higher probability to go higher
took a turn today that may put it in question.
The proverbial 1,000 word picture says it all. What began as a
continued rally, 13 points higher, at one point, turned ominous by
the close. There was a sharp increase in volume, an indication of
exchange between buyers and sellers. The lower end position of
the close tells us that the sellers won the battle of the day. WHERE
the battle occurred makes it more important. Price rallied to new
high ground, but failed. Not a good sign.
In yesterday's article, we showed how the wide range hourly bar
contained the day's activity and indicated it could be important
support/resistance, [See S & P - Breakout?, click on http://bit.ly/hqk9H,
second chart and paragraph above it.].
The market correction from Tuesday's high was orderly, normal...at
least until the last two hours when the decline turned in earnest and
on increased volume. It is too soon to say this could be a nail in the
rally coffin, for the trend remains up, but today looks like a turning
point beginning on the hourly. There was a lower high and a lower
low in late day trading.
There was another hint that gives today a stronger red flag
consideration. Take another look at the daily chart, above. Since
the late August lows, you will see what corrections there were lasted
only one to three days. That changed in November. You can see
the correction lasted more than several trading days, and the
correction in price was greater than the previous corrections, as well.
That flurry of activity told us that the rally had weakened...not ended,
but certainly weakened.
It is for that reason that today's red flag activity bears closer scrutiny
in HOW price continues to react. If volume stays high and the
downside ranges remain wide, the S&P has problems. If volume
decreases, along with price ranges during a decline, it does not take
apparent weakness out of the picture, but it may help the buyer's cause.
It is too soon to speak of the weekly chart, but if price does continue
to decline, the failed rally on the daily could spill over to the larger time
frame, and that would spell even more trouble for buyers.