Thursday Evening 10 February 2011
The second half of this analysis is quite technical/detailed. If you
have the patience to follow, you will gain insight on how markets
work and send messages.
There appears to be consistent selling going on in the S&P, but
not enough to turn the trend, at this point. The daily chart shows
how the last four closes have clustered, and the last three within
3 points. [Ignore the last small bar which is overnight activity
leading to Friday.] A clustering of closes can lead to a turn in
the immediate momentum, which does not mean a turn in trend.
What can be said here is that the closes have been upper end
of the day's range. The position of the close tells who won the
battle between buyers and sellers. However, as the expression
goes, appearances can be deceiving. Many times, how a market
will resolve itself cannot be known until after the fact, and that may
be true here. If price is to retreat, as a result of the clustering,
there is support around the 1296, the high in mid-January, to
1306, the 3 February high. How far any pull-back may go will be
determined by the size of the ranges and volume.
When we say there is no supply selling, that kind of selling is
differentiated from day-to-day buy/sell activity. Supply selling is
reflected by larger ranges to the downside on notably increased
volume, and previous support is broken. There has been
evidence of the kind of selling that can lead to supply, but not
sufficient enough to turn the market, yet.
A 30 minute chart will show what we mean for the past few days.
The arrows pointing down show selling activity. The arrow on
the far left covers two bars. The higher bar's close is under
mid-range and that indicates sellers were stronger than buyers
at an area when buyers should be in control. The next bar is a
wide range bar down with a poor close and an increase in volume.
This is what supply looks like. It is becoming more prevalent, but
The second arrow from the left is a retest rally that closes low end.
The only way that can occur is for sellers to be stronger than buyers.
Switching to the next two arrows that point up. The first up arrow is
a wide range bar, high end close and strong volume. This is the
highest volume on the chart, up to that point.
The next arrow is a bit more interesting. Volume is the highest, yet
the range is smaller than the previous rally bar. Two points: 1. Note
the location of progress after two of the highest volume bars that are
buyers in control. Price did not get above the retest high of the
second down arrow bar. All of that effort did not have much of a
payoff. 2. The fact that the range is smaller tells us there were
sellers present that kept the range from extending higher.
The last arrow bar, pointing down, did not have much volume
associated with it, but price erased the rally activity and close
UNDER the highest volume bar. That is an indication of weakness
masked by apparent strength. It is also why we are saying there is
evidence of supply selling activity under cover of the market rallying.
It just has not yet been enough to end the trend. At some point it
will, and when it does, the market is likely to fall hard.
Caveat: the market is not there, yet. It is likely to continue higher.