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S & P - The "HOW" Of A Market Is Most Important. It Reveals Intent

Monday Evening  Spring Equinox  2011

 Of course, the trend is always the most important piece of
information, and it is the starting point for any market analysis. 
One can then identify likely support/resistance areas, high
volume and wide range bars, small range bars with high volume,
etc, that tell us where to expect a reaction, or no reaction, for
both send a message.  It is these kinds of messages we look for
because they are the language of how the market "speaks."

 One of the best ways to understand and interpret market intent
is to watch HOW price approaches and responds to any one of
the above points.  If price is nearing potential resistance in a rally,
and the bars narrow on declining volume, we know there is a lack
of demand and resistance is likely to hold.  If the bars are wider
with strong closes and volume increases, resistance will likely fail...Advanced Analysis 101.

 Then, what is the market telling us when looking at Monday's
results?  Just our luck, a mixed message.  Price is rallying, and
Monday was a high end close, telling us buyers were in charge,
but the volume was low.  From the low volume, we assess it as a
lack of sellers, in addition to weak buying effort.  [Ignore the tiny
last bar which is the overnight activity]

 Take a look at Friday's bar, second bar from the right.  It was a
decent range, but note the close.  It was mid-range, and that says
a draw between buyers and sellers, but in that statement, it also
shows that sellers kept price from closing higher.  On that basis,
it suggested possible weakness for Monday, but the market rallied
substantially, instead.  That brings us back to volume, which keeps
getting lower on the rallys.  It ain't supposed to be that way, but it is
what it is.

 Based on Monday's result, price should make a higher high on
Tuesday.  Because there was no sell-off, and sellers did not show
up to take advantage of a weak buying effort, one can conclude
that the market will continue to go higher to attract selling.  That is
axiomatic.

 The initial upside resistance area, by our previous estimation, has
been reached and now is likely to be exceeded.  Here again, we
always say to watch developing activity, for it will confirm or require
a change  in any analysis, and change is required to adjust to the
new market price information.  Then where to next, if that is to be
the case?

 At the end of February and into the first part of March, price formed 
a wedge that is most always resolved by a break just before, or at
the apex.  In this instance, price broke to the downside.  The trading
ranges widened, and volume increased, signs of increased selling
activity.  When the downside progress became less, last Wednesday
and particularly on Thursday, 4th and 3rd bars, respectively, that
was our clue to say a rally of some sort may develop, as one has,
but we digress.

 Where price broke to the downside may be an area where the
market is saying it could go, 1310 -1312.  This is not to say price
can fail anywhere in between, but it is the most prominent for
consideration.  We wanted to sell a weak rally into resistance, but
so far, the market has not shown price to react poorly during this
current rally.  Volume is lackluster, but price is the final arbiter,
because new buying could emerge tomorrow, so we stick with price.

 Essentially, we are looking for confirmation of a weak rally, not
yet in evidence, or now possibly a weak sell-off, telling us the rally
is far from over.  Reading the market does require patience, and
the read may not always be right, but when it is, it presents a
reasonably lower risk for a potentially profitable return.

 Still waiting.

 

S&P D 21 Mar 11