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S & P - Rally! Maybe? Very Weak Market.

Thursday Evening  1 July 2010

  What makes today's activity different from other recent days? 
A few things are apparent, one is not.  The close was near the
high of the day and the upper end of the bar, after the end of a
123 point break in eight days.  This close is only about 5 points
lower than the previous day.  What is not apparent is the level of
volume, for what you see on the chart is not the total for the day. 
Thursday's volume is the highest in two weeks, and it tells us the 
increased level of buying was that of short covering.  Taken
together, this could lead to a rally, or perhaps better said, a
reaction rally.

 Tuesday's decline was a wide range bar, [third bar from the end],
one that says sellers were totally in control as price cut right
through previous lows, most notably the one of 6 May, the huge
spill that took everyone by surprise, and the previous low of the
move in late May.  Those two lows, 1056 and 1037, are the target
for where a reaction rally can carry.  This market has been so weak,
with zero demand buying in evidence the past eight days, it may be
the best the market can do.

 Of course, there is no way to determine the quality of any potential
rally.  Should one be stronger than indicated, the half-way
retracement area is 1067, and that is near the high of Tuesday's
wide-range decline at 1074, an area expected to be well-defended.

   S&P D 1 Jul 10

 Another tell, not seen on a daily chart, is the fact that the rally from
the low was 20 points, and that is the largest intra day rally since
the April high.  That represents a change of behavior, a small one,
to be sure, but when coupled with the daily observations, gives
additional credence to the expectation of some kind of reaction rally. 
Also, the two largest volume bars, after the first few hours of trade,
are clearly to bars that were wider in range and high end closes.

 The market is clearly weak in character, and we now seek a point
for where any potential rally may end because the downside potential
is for 900-950.  Plan accordingly.

S&P 10m 1 Jul 10