Tuesday Evening 22 February 11
The most important aspect of any analysis is recognition of the
trend, something we repeat, frequently. Another important part
is to deal only with present tense analysis, the factual
observations that can be made in order to reach a conclusion.
This was also the gist of yesterday's comments, [See S&P- Deja
Vu All Over Again, click on http://bit.ly/fZsVbE, 3rd and 4th
paragraphs]. You make decisions based on what information is
available, at the time. Changes, if any, can only be made as new
information enters into the picture, [chart]. On Tuesday, we got
more information, and it opens a lot of possibilities.
We will start with the most important point, the trend. The daily
trend remains up, and in yesterday's chart, which is what you see
below, but with Tuesday's final outcome, there is potential support
at the 1300+ area, noted by the heavy line starting at the previous
large sell-off high, the Egypt news, and then support in early
February, along with the lower support channel line. That day's
sell-off was 29 points. Tuesday's sell-off was 32 points, and on
There many observations to be made in this chart. We added
an upward slanting wedge to show the increasing steepness of
the rally assent. This could have been done yesterday, but we
have been "crying wolf" with so many rally caveats, it seemed
too repetitive. Turns out, it would not have been so. The 32
point decline erased 6 days of effort in one fell swoop, and it
decisively broke the wedge pattern. The reason for pointing it
out is the volume. It has been the highest in this recent rally,
along with the widest range bar to the downside. A reference
is often made to selling activity versus supply. Supply is when
the range increases, along with a sharp increase in volume,
[See S&P - Tenuously Working Higher, click on
http://bit.ly/gOFPxt, 4th paragraph].
Are we seeing a potential change in progress? That is a harder
question to answer. As was said after yesterday's pre-Tuesday
activity, the market needs more time, and the same holds true
now. We need to see HOW the market responds to this sharp
sell-off. Back on the news-driven decline of 28 January, the
market responded with a small rally that stemmed the break.
Will that repeat? No one knows, so we have to wait for more
information to develop in the day[s] ahead.
If we are seeing supply enter the market, it will be confirmed by
more downside or a weak rally response with smaller ranges and
decreased volume. Looking back to the Friday, 28 January high
volume break, we know supply did not enter the market based
upon HOW the market responded...two strong rally days that
negated the decline, and then a continued rally to the last high.
If this break is different, then we can expect an accelerated decline.
Initial support is between 1300-1306, previously indicated. There
was a small swing low on 3 February at 1291. If these potential
supports give way, look for the 1260 area, next. This is not putting
the cart before the horse, but a look at levels that will tell us to
watch HOW price reacts to them, when and if approached.
The purpose of showing the wedge formation was to highlight
the steepness of the directional rally, as compared to the larger
channel, which is not as steep. As a rally incline sharpens, it
makes the market more vulnerable to a blow-off top. There is
not such top apparent, in a blow-off sense, and that is the only
caveat we have. Will we yet see new highs, at some point?
Always a possibility, for now, although near term, the market may
be in a defensive mode, at a minimum.
Either way, Missouri's unofficial motto applies, "Show me!"