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S & P - Temporary Relief What Follows Will Be Key

Tuesday Evening  9 August 2011

  After the political calamity and the gang from the Federal Reserve
that could not shoot straight, the market reality in response to what
central planners, AKA Central Bankers, reached a likely culmination
on Tuesday.  The three highest volume days of the year occurred
consecutively over the precipitous drop of the last three days.  It
will take several weeks to get a better handle for future market
development, and it can and will likely get worse, for the near term
the market should settle down to some degree. 

 Most of what we saw the past few days has been short-covering, as
opposed to new buying, so one should not have high expectations
of a sustained rally.  It will take some time for the market to build a
recovery base, if one is to be built, at all.

  There are two things to watch for in the several days/weeks ahead. 
The first is the extent of the immediate recovery rally and its character, in terms of strength or weakness.  The second, and perhaps more
telling, will be how Tuesday's low gets retested.  We drew a few
horizontal lines from previous supports that will now become resistance.  That is the target for where any rally can go.  Should any rally fall short of this area, that will be a sign of weakness.

 While this low is likely to hold, at least for a while, the best one can
expect would be a developing trading range.  From wherever a
recovery rally peaks, the most telling market information will be the
character of the retest lower.  For any hopes of price recovery in
the months ahead, the days down should show a general narrowing
of the trading range.  This will let us know that sellers have pretty
much spent what they had.  If we see volume decline, as well, that
will be one of the most important keys in determining the character
of any potential recovery.  A drying up of volume on down days will
send a clear message that selling pressure is no longer there, and
that will set the stage for a more sustained rally.

 If the market does not evidence this kind of activity, the low may not
hold, but again, we need to see more information develop over the
next few weeks to make a better assessment.  One thing any market
participant should be aware of is to not buy into the first rally.  Wait
for a retest.

The intra day chart will show how volume on Tuesday turned positive
by day's end.

 S&P D 9 Aug 11

 One more point to make about the highest volume of the past several
trading days is that such increased activity is most always a transfer
of risk, in this case, going from weak sellers, near the end of the
decline, into the hands of strong buyers.

  You can see the final two high volume bars was 1. stopping volume,
evidenced by the mid-range close, a sign of buyers entering at the
lows, which is how that bar's close was able to rally off the low, and
2. equally high volume on a wide-range rally bar with a strong close. 
That was the strongest showing of any intra day bar since the July
high, and it backs up the above discussion.

 The reason why you do not want to buy the first rally is because it is
mostly short-covering, here, and that form of buying cannot sustain a
rally.  The point about a transfer of risk from weak to strong hands at
the low, here, is that if strong-hand buyers recognize that any rally
potential will not work, they will sell what they acquired right back onto
the market, and the weak-handed bottom pickers will be buried under
the weight of what will be thrown back onto the market and new
additional selling, as well.

 Wait for a more opportune time.

S&P 60m 9 Aug 11