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S & P - Corrections Say Normal Trend. Another Sign To Watch

Tuesday  27 April 2010

 The daily chart below shows a lot of numbers, 1s and 2s, and they
represent how many days price corrected by making a lower low.  Once
a trend is established, corrections typically last from one to three days,
sometimes up to five, without disturbing the trend's direction.  Here, all
of the corrections since the February low have been either 1 or 2 days...
not even a single 3 day correction.  [The Fed does have buying power].

 In the past couple of weeks, the largest volume days have been to the
downside, yet price keeps rallying to new highs.  Is it any different this time?


 Of concern is the small range at the recent high, yesterday, along with
the low end close.  This market driven source of information tells us that
buyers were not strong enough to extend the range higher, and or sellers
were sufficiently present to prevent buyers from extending the range.  This
is just applying logic to interpreting the developing market activity.  The low
end close lets us know that sellers won the battle that day.

 Because the trend is clearly up, demand has already been proven.  It is
the sellers that bear the burden of proving the trend is changing, and so
far, sellers have not done that.  What kind of proof?  Increased range size
on down days, accompanied by increased volume, followed by smaller
range rallies on less volume.  Also, a lower low that takes out previous
support, followed by a lower high, indicating buyers are no longer in control.

 All of this is absent, and until sellers can assert themselves, as described,
price will continue to work higher in this aging up move.  Naturally, this can
change on any given day as we see newly developing market activity, but
until we do, it is status quo.

 We had been short last week, then long from Friday, but exited long
positions when new day session lows occurred at 1212.  For now, we are
on the sidelines to see what develops from here.  We expect downside
follow-through today.  How much, and to what extent will help determine if
sellers are going to succeed in wresting control from the Fed, er, the bulls. 
If the correction lasts but one or two days, well, now you know the drill.

S&P D 27 Apr 10