Sunday 18 July 2010
Not many look at charts beyond intra day and daily when assessing
the markets. We are presenting the Quarterly and monthly charts,
rarely viewed by most, because they portray the overall conditions of
the market, sans the daily/intra day "noise" that keeps people focused
on the proverbial trees. This is our "forest-like" point of view.
The bull market ended in the first Qtr of 2000. What followed was a
normal correction in 2002, and then a retest of the market high. Why
do we call it a retest if a higher high were made in the final Qtr 2007?
It sometimes happens that way, and this was one of those times. Note
the size of the bars and the shorter duration in time to reach low in
2002, 11 Qtrs. Contrast that with the smaller ranges on a more
labored rally to retest the high, 20 Qtrs, almost twice as long to cover
the same ground lost.
It is the character of the decline versus the lesser character of the
recovery rally that defines the quality of a given move. From the
2007 high, price has made a lower swing low. What characterizes a
change in trend? Higher swing highs in an uptrend, and lower swing
lows in a downtrend. After the April 2010 high, we may now be
seeing a lower swing high to confirm this change in trend. That
April high now becomes the most pivotal point in the developing
market scenario. It also happens to be a Quarterly Outside Key
Reversal, [OKR]. This is a potent piece of information.
OKRs have been covered here often. To save going back, briefly
an OKR is when the market makes a new recent high, then a lower
low, and in this instance, also a lower close. In fact, the second Qtr
close was very weak. It almost reversed the previous two Qtrs' effort.
It is also obvious, [once you look], that volume increased to the
highest level since the low, just over a year earlier, March 2009.
April 2010 could very well be the last gasp rally within a bear market
environment. If it stands, it may be decades before it is exceeded,
again.** From here on, prices are about to embark on a protracted
move lower and should easily exceed the 2009 lows around the 740
**We say this but will qualify by adding that the Fed's deliberate
debasing of the US fiat Fed "dollar" could rally the S & P to $50,000,
but that "value" will be relative to the cost of $200 loaves of bread.
One of the characteristics of a retest rally, which is what the April
2010 high is, is that it retests a prior last support area, and that
previous last support was 1202 in July 2008, just before price fell
with such unbridled speed. Note the size of the bar in April 2010.
It is very small, and the close was under the mid-range point of the
bar. We know that a small bar in a rally shows the inability of
buyers to extend the range higher, and that is because sellers
came in and stopped the effort. The position of the close tells us
that sellers won the battle that month. There are no accidents.
Previous support becomes future resistance. It is worth
mentioning that the volume for that April was low, a sign of a lack
Where did the decline from April stop? Right at the high of
November 2008, the highest high for over nine months. For
your information, markets are continuously testing and retesting
previous support and resistance areas, all of the time and over
all time frames. These are just two examples, and on a larger
monthly time frame.
The April high to recent July low may be the parameters of a
trading range for the next several months, if price does not just
continue lower. As we often say, anything can happen, and there
is absolutely no way to know how a market will unfold into the future.
So the anticipation of a trading range may or may not happen.
Keep in mind, these are larger time frames, and they take longer
to develop and confirm, but you can rest assured that the larger
money interests are keenly aware of, and use them. Next we move
to the "tree" level of a 60 minute chart.
On a much shorter time frame, a trading range had developed
between the 1075 area and just under 1100. Once the 1075
support gave way, on a day of no forgiveness for the longs, a
short position was initiated as it became quite clear that the
market was breaking down. Note how once price traded under
1075, every bar had a low end close, showing that sellers were
in control and buyers were unable to make any kind of showing.
The 1075 area is likely resistance on a retest of the breakdown
that occurred. One has to watch the developing market activity
to see HOW a retest of potential resistance transpires, and the
market will provide those clues.
Disclosure: Short S & P