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S & P - Short Near The Close - Today Is Replete With Technical Observations

Wednesday 21 October 2009

Earlier today, we said we would no longer comment on this specific market because most everyone one of the previous articles have been warnings of
a correction or change of trend, and all to no avail.  To save credibility, it
made no sense to keep ringing the same bell.  Late in the trading day, we recommended short positions at 1080, so our absense was less than brief.

As noted, there are so many observations to be made about today that
not all can be covered here.  An important one is to be flexible and always
be ready to go with what the developing market activity demands.  For as
many times as a warning sign was given here, there was never any supply,
sellers coming into the market and assuming control as a follow-through. 
Today, it looks like that was the case, but it was not apparent until the last
50 minutes of trade.

We were already resigned to seeing price go over 1100, possibly 1115,
inspite of the indications of a weakened market.    Note was taken, around
2:10 p.m. CST, on the first 60 minute chart below, how four straight hours
had similar closes...called clustering, a sign of an inability to make directional
progress.  Still, there was NO selling coming in.  One thing that has been
apparent throughout this rally is the lack of supply to take advantage of
weak technicals.  With no supply, and anemic demand, relative to the six
months of rally effort, [Thanks to  FED/POMO], in the battle of no supply
v hardly any demand, demand was winning by default.

S&P 60M 21 Oct 09

Then a funny thing happened.  Price started to sell off, surprisingly because
it had not done so in the past in similar situations.  We felt we were having a
stopped-clock moment in being right, at least this time. The first chart shows
the market structure just after 2 p.m.  You can see the four straight closes,
after a runnup in the first hour, and a higher close preceding these four.  
1100 appears in the upper right of the chart, aresistance point.

There has been so much talk about new, high levels being attained, with
even higher levels in the making, so everyone could see 1100 staring back
as a level to be breached.  If you look at the market activity of the 19th,
when price came closest to 1100, the ranges were small, as we noted in a
previous article.  The rally approaching 1100 was weak.  Then today, the
rally was even weaker with the cluster of closes.  But there was no selling
coming in to take advantage of the obvious weakness, AGAIN!

To emphasis this, the daily chart, a higher time frame with greater
significance, shows six days of moving laterally, exhibiting no effort to go
higher.  Here you can see where just a modest amount of selling effort could
tip that precarious movement down, easily.  We thought that five days ago,
so six was just more of the same, and we could no longer justify issuing
caution. 

There is that 1100 mark that the whole world sees, and price is limping its
way to the top.  Then that funny thing called selling started to happen, and
this is the important point we started making in the second paragraph, about
being flexible.  We have seen selling before, leading to nothing more than a
lower buying opportunity for those who were willing to follow the POMO
bandwagon.  Despite resigning to the idea of 1100+ prices eminent, today
or tomorrow, price behavior was saying otherwise, and one HAS to be willing
to be flexible and go with the developing flow and respond immediatley.

We have said selling will come in, at some point...next hour, next day,
next week.  No one knew when.  The market was sending a message in both volume and market activity.  Price failed at important resistance.  Demand
could not take the next step when it had the opportunity.  Finally, the vacuum
was being filled with new selling activity at the most appropriate price level,
a point of resistance.  It was all coming together, late in the day when few
were expecting or prepared for the sudden turn. 

The markets wait for no one.  Be there and be ready to act, or stay out. 
It is that simple.  Woody Allen once said, "Ninety percent of life is just
showing up."  We have been showing up and are of the belief that this
10% may matter. 

S&P D 21 Oct 09

Results?

Take a look at the hourly chart just 50 minutes later, the third chart below. 
The cluster of closes gave way.  Price tumpled going into the close.  We
went short at 1080 on the way down because we also know that markets
can turn on a dime when least expected.  Look what may have been left
behind!  A failed probe to the upside. 

The 6th bar from the end rallied to new highs on a range smaller than the
wider range bar just before it, the volume was still relatively high, but the
close was in the middle of the bar, a draw between buyers and sellers.  It
can be called a draw, but the edge goes to the sellers because they
stopped price cold from advancing at new highs.  The probe higher would
have triggered stop losses for weak shorts and buyers of new highs. 
Because price came right back into the range tells us there was NO
demand at that higher level.  A message from the market; another piece
of the puzzle.

The decline of the last two bars is the largest decline for the month of
October, and the largest since 23 September, which had continued selling
on the 24th, at that time. 

S&P 60M2 21 Oct 09

The final daily chart shows results at the close.   A wide range bar down,
moving AWAY from resistance, on increased volume, [supply], and a low
end close.  Price went under the entire six day lows and also lower than
the 23 September rally high of 1075.50, now support.

Will price continue lower?  We do not know for sure, but so many
technicals have been flashing weakness this month, some kind of
correction is likely.  Just like developing market activity provided
direction late in the trading day, the market will reveal its intent hour by
hour, day by day, and we are ready to read its message.  Measures for
the downside will come next time.

S&P D2 21 Oct 09