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S & P - The Message Of The Market Is Clear. Do Not Lose Sight Of It.

Thursday Evening  10 June 2010

 Our read on this developing market gyration has been on target,
starting with identification of demand buying back on 25 May, and
expectations of a trading range.  [See   S & P - A Set-Up In The
Making
, click on http://bit.ly/aLZKzQ].  Thursday's turnaround rally,
when the market appeared to be on its back for a nine count, was
no accident when put into the context of HOW price had been
developing.

 If there is one word to describe this market since the huge fall on
6 May, it would be volatility.  It was not uncommon to see the Dow
having 100 - 200 day fluctuations, alternating up and down.  This
kind of volatility is not easy in which to participate, for the risks of
taking a position on either side of the market was large...just like
the rally in the S&P Wednesday, only to see it give back 26 points
by the end of the day.  It is for this reason that we remained on the
sidelines as this unpredictable trading range was being dissected,
almost day by day.

 What can be said of the market now is that the likelihood of a rally
to, and maybe above 1106 is a distinct possibility.  The ease of
movement up on one of the strongest volume rally days, recently,
tells us that the daily trend may turn up, at least for a while.  What
we need to see now is a weak reaction as a set-up to go long.

 You can see on the daily chart that the low of 25 May has now
been retested on Tuesday's higher swing low, confirmed by today's
strong rally.  This is an example of why we often say to wait for
confirmation of market activity to trade more confidently. We said
we needed to see a rally that held, and it finally happened.

 This would be a good time to put what has been developing as a
trading range into the next context for expectations of future 
developing market activity.  While there may be an opportunity to
establish a long position as this up swing develops, any rally is
likely to be short lived.  When you see the kind of volatility of this
caliber in a developing trading range, it most often leads to
distribution.  Smart money is setting up to get short on rallies in
anticipation of much lower prices in the future.  All of this volatile
buying and selling is a smoke screen designed to hide the deft
hand of market movers.  We mention this now because of the
belief that the bigger moves to come will be to the downside in 
the continuation of a bear market.

 The reason for making this point is to demonstrate how patterns
of market activity repeat themselves over and over, and what we 
see as developing  trading range is another phase that is used to
continue the shorting of the market that began back in April.  All
you have to do is compare the size of the bars prior to April, as
price rallied, to the bars after April, as price declined.  The
message is important and one not to be forgotten.

 For now, we get to deal with what is, and that is looking for a weak
downside reaction to get long.  This is also why it is so important to
know the time frame(s) in which to trade in order to go with the
developing momentum.

S&P D 10 Jun 10