Monday 15 February 2010
Most everyone places their focus on price activity, but few take time into
consideration. W D Gann put time ahead of price when considering the
two factors. When time and price square, [equal each other], such as a
45 point move in 45 days, a change in trend can occur. Sometimes, one
gets ahead of the other, as in the fast 107 point drop from the recent
highs in the S & P.
We drew attention to the possibility of a stopping point being reached,
two weeks ago, and then two days later, wrote about S & P - How To Find
Potential Support, Locating Turning Points, [click on this link:
http://bit.ly/cNzIIW. Scroll past the third chart for the pertinent discussion.
Also, within those few paragraphs is a link to the article that discussed
finding a possible stopping point, [http://bit.ly/anEIsu].
Price got too far ahead of time, and what we are seeing now is the
stopping of the price decline in order for time to catch up and become
more in balance. This is not an absolute in time and price always being
in balance, but sometimes, it offers a reasonable explanation.
In the daily chart below, you can clearly see the mini-selling climax that
occurred on 5 February, a week ago Friday, [also mentioned in the article
above]. The first pertinent observation is how price retraced about half
of that day's bar on the following Monday, 5th bar from the end. There
are two aspects worth noting about that particular day. 1. The close was
low end, indicating lower prices likely on the next trading day. That did
not happen. A red flag. 2. Volume decreased on that down day. Less
volume means there was less selling pressure. Why would there be LESS
selling pressure when sellers have buyers by the throat? Another red flag.
Now, to Friday's action. This chart captured price behavior within the first
20 minutes of trade activity. Price gapped down, [when viewed from day
session activity only], and was off 15 points right out of the starting gate.
[The time shows on the very bottom corner below the chart.] Some were
calling for a debacle to ensue. We thought price had a good chance of
rallying instead, to some degree.
We already gave evidence of the possibility of a stopping point, adding
more to that in the two points just made above. Now, look at all of the
activity for the current week since last Friday's lows. What you see are
five bars overlapping, with an upward bias. Anytime you see overlapping
bars, it is a sign of an ongoing battle between buyers and sellers.
Consider: Price has declined 107 S&P points in just a few weeks. There
is evidence of a possible selling climax at the low of the decline. There
was no downside follow-though to the sell-off lows. Here we are on
Friday morning, down 15 points that followed a strong high-end close
rally the day before, BUT...there was NO technical damage apparent
after that 15 point decline.
Price was too far ahead of itself, and the present tense developing
market activity was telling us that the selling energy had dissipated, as
we observed the facts given above. Sellers were spent! All that was
happening early on Friday was a washing out of weak longs and the
trapping of overly zealous shorts who did not want to "miss out" on the
Some things in trading never change.
Another very important point to be made is where price closes at the
end of the day, for it is at the end of the day that a winner is declared
between buyers and sellers, and the position of the close makes the
final determination. We said this chart was printed early in the trading
day, 8:42:53 a.m. CST, to be exact. Few would have guessed that
price would close at the opposite end of the bar!
We would not have guessed the opposite end, but given the factual
observations put forth, all from viewing recent market activity, we figured
the downside was done, and maybe a mid-range close to confirm it. The
element of waiting for time, the end of the day to see where price would
close, was very important because of those overlapping bars, and the
fact that they occurred after a potential selling climax.
Friday's close is breaking the down channel developing off the recent
highs, and we expect that the 1104 area can be retested. The 1095 area
is the half-way retracement from high to last week's low, so a band of
resistance has developed. Plus, price could exceed 1104 and still be in
a down trend. What needs to be determined now is HOW price rallies and
reacts to the points identified. At some point, weakness will be apparent
within the down trend, and that is where to get short again. Precisely
where "that" point is going to be will become obvious from developing
There is no need to guess when we have the most reliable source of
information working for us, in the form of present tense market activity.