Thursday Evening 15 July 2010
It is really difficult to properly analyze a market that continually
receives Fed support during options expiration week when the
Fed pumps money into the system, an indirect support of the
stock market. This is a fact that goes back to 16 July 2009 and
every options expiration week since. The "free" market is not so
free, what with the corporate federal government taking over
so many business-related functions, and with no opposition...
certainly not from Wall Street, the prime beneficiary of this Fed
largess. It is the non-Wall Street participants, [read that as
stockholders, pensions, 401ks] that take the hit.
However much any faction may interfere, one thing can be said
about the market with certainty: it never lies. Reality may get
overstretched, periodically, but the "facts" eventually bear
themselves out. Look at the volume during the rally near mid-
June, with so many green volume bars. Ostensibly, that would
be very bullish. Then, look at the bars at the top of the June rally.
Notice how they become smaller even as volume was relatively
high. A lack of range extension upside on increased volume is a
red flag. The rally fizzled and the market broke to new lows in July.
The quality of the rally was lacking, near the end.
Now we have the July rally, surprisingly strong,[why not when the
Fed is backing it], but note the volume this time. Volume is half of
what it was in the June rally. That brings us to today. It looked like
price was headed south, but once again, something prevented the
downside from gaining momentum. That "something" is anyone's
guess. So, we deal with what is.
We then look at the closes. They have formed a cluster, and we
have written about closes that appear in a tight range. It usually
marks a turning point. Did we mention how small the rally bars
were leading up the past three days, on weak volume? Yet
the market still rallied. Oh, well.
Another possibility for the clustering of closes is that the market
could be biding time in preparation to continue the direction
preceding the clustering of closes, up, in this instance. Based on
the internals of the market structure, we are not fully convinced
that the rally has sustaining character, but one can never fight the
If there is to be a turnaround, the market will indicate by wide range
bars down that have poor closes and increased volume. The same
is true of how a market rallys: wide range bars that have strong
closes and increased volume. We do not see that here.
Accept no substitutes. [Currently, no position]