Thursday 10 December 2009
This is a market that is having trouble getting out of its own way. You can
see from the trend line, drawn up from the July low, the S & P continues to
make higher lows. Our focus is on the higher highs, labeled A, B, C, and D.
It is apparent the each successive high is making less upside progress.
The most recent high, D, barely made it above C. The time spans are also
getting shorter between each rally.
There are a few interesting observations to be made. When price declined
from the high of rally B, the decline was longer and volume increased. This
tells us that sellers were active on the decline. However, the selling was not
strong enough to overcome buying as the low of the decline held above the
previous decline low from the beginning of October.
The next rally to C did not go very high over B, and just as importantly,
volume declined on the rally. Buyers were not there in supportive numbers,
literally. The rally to the most recent highs, D, showed persistent resistance
when price was over 1111. We covered that two day Key Reversals in a
recent article, S & P - Ayn Rand Nailed This Over A Half Century Ago!, in
the third chart, a daily. The volume at the high was the highest in over a
month, and it showed sellers were present, based on the location of the
close, around mid-range.
The four week-long trading range is not a sign of strength. However, when
all is said and done, we have to show respect for the trend, which has yet to
be broken. Even with all the signs of weakness described, and there are a
few other things not covered, there has been NO supply selling to break a
The S & P has turned into a trading affair, 1115 area upside, 1080 area
downside. Since March, there has been no supply-caliber selling. None.
We addressed this as a POMO issue, the market being driven up for
political purposes, a function of window-dressing so common to government
agencies across the board. If supply selling does not come in soon, the
market may have one more "last grasp" to the upside that could reach the
1200 level, +/-. [see S & P - Will POMO Win Again? ]
What we know for sure is that trading ranges are always resolved as the
balance is taken over either by the forces of demand or the forces of
supply. The last two attempts to breakout to the upside, last week, failed,
but so have attempts to go lower. One day, and the further along the right
side of the trading range price moves, the sooner that day will come.
For now, respect the trend, but be very aware of its weakness.