Thursday Evening 12 August 2010
We are strong advocates of knowing the trend as the first
consideration in taking a position. The trend is an indication of
directional market momentum. The daily trend has been down
since the April high, but within the downtrend, price has been in
a sideways trading range defined by the 1130 area on the high
side to 1002 on the low side.
The market has provided us with important information over the
past week. 1130 is very strong resistance, and that was confirmed
by Wednesday's large decline with ease of movement lower. It can
now be said that the trend within the trading range is decidedly down,
and that information makes decision-making easier...trade only in the
direction of the trend.
Thursday's low reached a somewhat oversold condition, just above
1070. One clue about being a bit oversold is the smaller range.
Sellers were unable to extend the range even lower, but after a near
60 point break, that is understandable. This does not mean buyers
were present near the lows. The open was near the high of the day
session, and the close was under that opening and just about mid-range.
Not shown is a weekly chart, but unless there is a dramatic rally similar
to Wednesday's decline, it will have a very negative price position.
The weakness is more apparent on the 60 minute chart. After two
strong volume bars, [the two green bars starting at the day's low],
price was unable to mount any rally above the 1085 area. This is
a weak responsive buying effort, some of which was short-covering,
and it typifies and confirms the character of a weak market when a
trend is down. If this is the best that could be "accomplished" in five
hours of effort, it tells us that any kind of reaction rally over the next
few days can be a selling opportunity.
Now, we do not have to "predict" what may happen. Instead, all we
need do is monitor developing market activity, and when we see
some kind of turning point on a rally, it will be our signal to add to
any short position, or initiate a new one for anyone not yet short.
There is no guesswork involved. It is simply a matter of knowing
the underlying market conditions and reacting accordingly.
Sounds like a plan.