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S & P - THIS Is Supply Selling! Weak Demand Collapsed In Its Wake.

Friday  5 February 2010

 Throughout the rally from the last July correction, we maintained that
demand was relatively weak, but however weak, there was NO supply in
the market to stop the upward move.  People can get confused between
selling that occurs as a matter of daily activity and supply selling.  When
supply selling enters the market, the downside bars widen, volume
increases, and previous support areas are broken.  Normal selling activity
does not exhibit these characteristics.

 The chart below points out several supply selling bars.  You can see how
they widened going down, volume increased, and previous support areas,
1088 and now 1062, have been broken.  This is also the first time that a
lower low has followed a lower high, last week, after broken support levels. 
There was a correction last July, but previous support remained intact, and
the low was a higher low, indicating that the trend remained up, at that time. 
That is no longer the case in this change of trend.

 We went short on the second wave down and covered half the position
yesterday, at 1071, for money mangement purposes at what was thought
to be minor support.  It did turn out to be very minor, holding for about an
hour and a half before giving way to lower levels and a close at the target
area of 1062, the "Dubai low" from last November.  Overnight activity carried
the momentum lower, to 1050, as we write pre-opening, but price has been
recovering back to the 1062 support area.

 The weekly and monthly charts have turned negative and lower prices
are more than likely.  We see no ending action to the current decline. 
Corrective reaction rallies can be expected, and we will be sellers on weak
rallies into resistance areas.  There is no reason to be long this market. 
We have been saying it for a few months now, due to the weak demand
that could not sustain the continuing rally into the January highs. 

 The next target area is 1025+/-.


S&P D 5 Feb 10