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S & P - Trend Change - A Reversal Of Fortune

Monday  1 February 2010

 Oh, how quickly things change!  The last two weeks wiped out efforts from
the last three months.  This is what can happen when supply enters a market "dominated" by weak demand.  We have talked about  this specific issue,
[lack of demand, no supply], for a few months and our reluctance to be long
such a market.  We also introduced you to the Nasdaq- S&P E-Mini spread
as a leading indicator and how once 730 was broken, it would change the
market, Nas-S&P E-Mini Spread Sending Mixed Signal,  [click on
http://bit.ly/6r1WZV].  The market collapsed along with the spread, taking no
prisoners.

 Nas-Es D 1 Feb 10
 Starting a new month, it is appropriate to look at a monthly chart,
particularly because they are more controlling when it comes to defining
the major trend.   January is the largest reversal month since the March
2009 lows.  It formed an Outside Key Reversal, [OKR], which is a new high,
a lower low, and a lower close.  Two aspects about this OKR worth noting. 

 Firstly, it followed the smallest monthly bar, also since the March 2009 low. 
Any time you see a small range  bar, it can be a sign of reversal.  In this
instance, the smallness of the range reflected the market's  inability to
extend the range higher, also a sign that sellers were preventing buyers'
efforts to rally more.

 Secondly, the close of January was under the low of the entire range
of December, a very bearish sign.  We often remark that anything can
happen and how it is impossible to know how a market will respond in any
given circumstance.  That was proven by the cascading drop in price that
offered no corrective rally from which to initiate a low risk sale.  Once price
began to sell off from the high, the trading range still had to be respected. 
What transpired was the unexpected in price  dropping with impunity,
cutting through not only the smaller trading range, but also through the
November-December range as well.

 

S&P M 1 Feb 10

 It is clear from the daily chart that the 21st and 22nd of January marked
when supply overcame demand, [7th and 8th bars from the end].   The
broken support of the 1125 area is usually retested.  This break has not
been usual, and there was no retest.  In fact, the closest the market came
to a retest was the brief intra day rally to 1103.50 last Thursday, [3rd bar
from the end]. 

 Price has now retraced to two important areas:  1. when there was a
demand rally on 9 November, and  2. the Dubai sell-off lows, which also
retested the 9 November demand rally, both becoming a support area
extending into the future, now the present.  The current monthly March
contract is holding just above support, whereas a monthly continuation
would show last Thursday's decline pretty much reached the support line.

 We did not extend that horizontal support bar to the left, but you can see
that the present sell-off low also has stopped at the September highs....
[remember, there are no accidents].

 There is no ending action to this decline, so the strategy is to sell rallies
that retest the 1104 highs, depending on HOW price approaches
resistance.  The "how" will provide the clues as to if and when.  If rallies do
not reach 1104, there should be a sign(s) of weakness for that, too.

S&P D 1 Feb 10