Wednesday 20 February 2013
The best thing about reading developing market activity is that it leads you to a logical conclusion, and when things are not clear, that too, is
a logical conclusion, saying: No edge, stay away. Because charts are
the visual form of final decisions made by all participants, we are
getting the best source for collective thinking about a market's
direction. What we get to do is read what message the market is
It is always important to put the market into a context. Many traders
are eager to "catch the next move," often based upon a myopic view
of price behavior. Most who look at charts view the daily and intra
day, looking for the next winner, often getting another loser. Here is a
It would seem many are interpreting current market activity as bullish,
especially with an Outside Key Reversal, [OKR] day. Looks strong.
Looks can be deceiving. Perhaps a look from a different perspective will
add to our level of information. The weekly chart puts a larger context
of which one needs to be aware.
Why is knowing about the middle of a trading range, [TR], important?
The middle of anything says balance, and for a trader it offers the
least amount of market information, other than from balance comes
imbalance, and it can go either way. 50-50 odds are no better than
a coin toss. Are those the kind of odds any trader wants? Not likely,
although many accept them.
Within the broader perspective, we zoom in for a closer look at current weekly activity. The small range at the last swing high, November '12, is the market letting us know that demand ran out and supply entered. How do we know? If demand had remained strong, the range would
have extended higher. What prevents a demand range from extending
higher? Supply overcoming demand. Market logic.
That becomes an important piece of price information, moving forward
because we know markets are always testing and retesting support or
Within the TR, we see two previous rallies that failed, and current
price activity is back to retest that area, again. So where the first
daily chart may have seemed bullish, to some extent, the higher,
more controlling time frame is telling us price is at resistance.
Taking a second look of the same daily chart, we drew in a horizontal
line showing where price failed on secondary retests of the earlier
November high, and current price is back for another probe. Will it
succeed or fail?
We know from the weekly that price is somewhat in balance and can
go either way. The daily tells us price is in a short-term rally but
bumping up against previously failed areas. One thing we know for
sure, money is not made in buying against resistance, and only novice
traders buy at resistance, in the unproven belief that it will go higher.
These charts were printed about mid-morning during the trading
session, so we have no idea where the close will be, but it will provide
additional information from which a more informed determination can be made. In a resistance area, the burden is on buyers to prove themselves.
What we want to know from today's wide range bar is, are buyers
going to fail again, or can they build up enough momentum to sustain
their effort? Will this be an exhaustion move in an upside feint? There
is initial resistance at the 81 area, and then 81.70. The market will let
us know by the way in which price responds to each level. The point is
to use developing market information to advantage and be in harmony with prevailing forces.