Monday Evening 24 May 2010
Yesterday, mention was made that the market will show its hand. Today it
certainly did that, for clearly the sellers are in total control. We said if there
are any surprises, they tend to happen in the direction of the trend,
[see S & P - Keep A Perspective, 8th paragraph]. The surprise came by
the end of the day: no follow-through rally, and ease of movement down.
What many expected today was the beginning of a recovery rally after
Friday's strong turnaround close off the low. Initially, price did rally. We
even engaged in a day trade from the long side, [the intra day trend began
turning up, so we knew the time frame for what was solely a day trade, and
made money]. The market made known its intent in the last two hours of
the trading session, and it revealed important information about what to
The first expectation, a continuation rally, was dashed when price could
not get above the lower end of developing resistance ranges starting at
1089, up though the 1123 area. The high was 1088.75. What confirmed
that the rally was likely to fail, in addition to it being weak, was the lack of
volume. In order to break through a resistance area, there has to be
volume, proof that buyers are present and behind any rally. The
opportunity to capitalize on a move up presented itself, however, buyers
were totally AWOL.
For a while, that was also true of sellers. Light volume said neither side was
pressing the market, although the down trend gives the sellers a decided
edge. What spelled Trouble for the bulls, and that is spelled with a capital
"T," was the ease of movement down going into the close. It was deja vu all
over again! By the end of the day, the market made it crystal clear, price is
headed south, almost with impunity.
There is no need to draw any trend lines or look at artificial indicators, like
moving averages, over bought, over sold, etc. The small range, the lack of
volume, and the close on the low says it all. [Second to last bar. The last
bar is the evening session, as we write]. It tells us how weak the market
really is. The close told us to expect lower prices Tuesday.
The message of the market is very clear. The demonstrated weakness and
inability of buyers to take a stand tells us the February lows, 1035.25, are a
retest, likely at a minimum. The downside momentum tells us that another
wash out of longs could be in the cards, and it could get ugly for them.
Never, ever underestimate the power of a trend, and never get in its way.
You are seeing firsthand why. There is little need to fine tune this decline,
for it will go where it has to go until most all of the hold-out buyers throw in
the towel. We have our rules of engagement, and there will be opportunity
to benefit. We are on the sidelines, waiting for one.