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S & P - Weak Demand, No Supply. A Market Lacking Character

Wednesday  20 January 2010

 Tuesday saw a price reversal as 1,300 tic gains erased last Friday's 1300
tic loss.  Price also stopped just under 11 January highs of 1148, and as
the market opens almost 800 tics lower on Wednesday, unable to continue
higher.  In fact, price has declined 1,400 tics, yet again, and the trading day
is less than an hour old, as we write.

 Sellers looked like they were in control after Friday's close.  Buyers looked
like they were in control after yesterday's close.  "Who's on first?" 
Tuesday's rally was a lack of sellers.  It was not a demand-driven rally.  We
make this point to give clarity to the character, or perhaps better expressed,
lack of character that defines this market.

 In an uptrend, demand is proven, so the onus is on sellers to demonstrate
they can change the trend.  We have already identified supply selling as
selling on increased volume that breaks support levels.  This is in contrast
to every day selling that occurs as a matter of course in any market.  When
even ordinary selling lessens, we get the kind of rally that occurred where
weak selling effort translates into the kind of rally that produced yesterday's

 Note the difference between the two days under discussion.  Friday's bar,
4th from the right side, closed off the lows.  This showed some buying at the
lows.  Yesterday's bar, second from the end, was a touch wider and closed
right on the highs with no apparent selling standing in the way.  Volume was
slightly less compared to Friday's volume.  What you are seeing is the poorly
defined character of this continuing up trending market.

 Mention was made of the 11 January high.  The range for that day was
small, and the close was middle of the range.  This tells us there was a
stand-off between buyers and sellers at an area where buyers are
supposedly in control, [at new contract highs].  Eight trading days later,
price has acted like a yo-yo covering 960 tics and closing only 250 tics
higher, net gain.  That was how November and December were defined,
as well.

 These points leads to the conclusion we have been making throughout the
past several months:  this market rallies in a weak manner, and that makes
it vulnerable to supply coming in and taking over.  As we also acknowledge
throughout the rallies, supply selling has been absent.  We know this from
the lack of volume when price does sell off, and zero downside continuation
on most any sell-off day.  Corrections are 1 to 3 days, typical in an up 
trending market, yet gains are labored, evidenced by the trading ranges.

 If anyone is seeking clarity on the stock market, this is not a bad description
to capture the lack of quality movement, in either direction.  What this says
is that the market will continue in this meandering move up, but...and this is
what keeps us from wanting to follow the upside, once any supply selling
comes onto the market, it can break down very quickly.

 Caution continues to be the message.  There is no reason to be short. 
None.  It is also difficult being long.  Sometimes sidelines is the best place
to be.

S&P D 20 Jan 10