Saturday 9 January 2010
The markets had a strong close into new highs on Friday, and this may help clarify the picture somewhat. One of two things can happen: Price can
escalate into a buying climax, or, this can be the start of yet a new leg to the upside. We have not been advocates of buying into this aged bullish market for numerous reasons cited; primarily, the lack of demand volume behind
what has been an artificially-driven market. Our reasoning has been best described in our most popular article using a quote from Ayn Rand, as a
summation. S & P - Ayn Rand Nailed This Over A Half Century Ago!
For those who have not followed us previously, the artificially-driven market stems from the Federal Reserve pumping money into the banking system via Permanent Open Market Operations, [POMO] for the express purpose of
supporting the stock market, the exact same process that Wall Street used
via the derivatives that brought on the collapse of 2007.
[See S & P - Will POMO Win Again? as one example.]
The S&P, and other indices, have been in a rising wedge formation,
struggling but still rising, and they broke upside, closing strongly. It will
serve little purpose to describe or analyze volume, or lack of it, for it has
not mattered in the past during this move. When a market reaches new
highs after a struggle to get there, we can expect a failure from a last
gasp exhaustion of the move, or it will receive new life and have another
extensive rally. Though technical common sense argues the former,
political realities must be acknowledged as favoring the latter, a
At least there may be some signs that will verify which. If an exhaustion
move is to follow, it will become readily apparent by a dynamic move up.
Little guesswork will be required. If there is to be continuation of some
price duration, the move will continue in a more orderly fashion. Typically,
after price jumps over a potential resistance pattern, [rising wedge in this
instance] it often will pull back and retest the breakout. On such a pullback,
the ranges tend to narrow, [range = high/low for the trading day], and
volume shrinks. This will present a relatively safe buying opportunity.
Other technical issues aside, the closes in the markets for the past week
have been higher end of the day's range. This tells us, bottom line, that
buyers are in control at the end of the day, and who is in control is what
matters. Developing present tense market activity should demonstrate the
character of the market's response to this breakout and provide clues as
to which direction to pursue. For now, more upside has to be favored.
Buying a retest of the breakout will be the order of the day, if price
conforms to evidencing pullback buy characteristics.