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S & P - What Is Missing In This Picture? Supply? Demand?

Monday  30 November 2009

What is missing is supply.  What is also missing is demand.  As price has
rallied throughout November, the level of volume keeps declining.  A
decline in volume says that demand has weakened, and this opens the
door for sellers to come in and take advantage of weakness.  The
problem with that is there are even less  sellers willing to enter the market
and push price lower when it would be easy to do so,  [less demand to
stop selling efforts].

The S & P market has become a battle of the absentees.  "Here, sellers,
you take over!"  "No, buyers, you stay in charge."  Well, because the trend
has been higher, since March, buyers remain in control by default.  It is
incumbent upon sellers to prove they can take over to change the trend,
and that is not happening.


S&P D1 30 Nov 09


 A Look at the weekly chart shows the dilemma by a cluster of closes over
the past three weeks, with buyers making scant upside progress over
the October highs.   The week before last, second bar from the end, has
a low end close that says sellers were "stronger" than buyers, but there
has been an inability for sellers to exhibit downside follow-through.  The
lower low from last week occurred over a three hour span in response to
the Dubai debt situation, and price closed about mid-range, a stand-off
of sorts between supply and demand.  Declining volume says no conviction,
either way.

S&P W 30 Nov 09


The daily chart does little more to add any clarity.  The highs, as shown
below, have gotten successively smaller on each rally.  This indicates a
weakening of the trend, but however weakened, price continues higher.

Regardless of what precipitates a price move, the net effect is printed
permanently on the chart.  The spike low on Friday presents an
interesting scenario that could lead to a sharp breakout rally that carries
price to the 1200 - 1220 area.  Here is why.

Where the weekly chart was neutral in close, [mid-range], the daily closed
on the upper end of the spike lower on Friday.  This demonstrates the
strength of the trend and an ability for price to be resilient in the face of a
sharp drop.  The ability to recover indicates that sellers cannot take
advantage of ANY price weakening.  This leads us to take a different look
at the market's inability to maintain upside momentum.  New information
always demands one be flexible in assessing market direction.

The weakened swings higher can well be the market's way of absorbing
what little selling effort there has been.  The cumulative effect of selling
effort has slowed, but not stopped the trend from continuing higher. With
this washout of sellers, including sell-stops, this could be the impetus to
propel the market higher, for one last gasp.  Should this occur, the next
likely resistance on the weekly chart is the 1200 - 1220 area.

Note that from last Thursday's high to Friday's low, price declined 44
points, but closed above the mid-point of those two days, showing the edge
to buyers.  A weak retest of Friday's low would tell us to look for a rally.  An
inability of demand to continue this opportunity will simply lead to more of
the same.

A few other points to consider.  The Russel 2000, a broader index, has
been the weakest of all.  The Nasdaq, the leader behind the market rally,
has also weakened, as has the spread between it and the S&P.  Essentially,
the level of knowledge is not high in the market, and that perhaps is the
most conclusive bottom-line assessment.  When the level of knowledge is
low, the odds of being wrong increase. 

There is no edge, and that is the message of the market, for now.

S&P D 30 Nov 09