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S & P - Market Says Lower. How Far And How Long Is Unknown.

Sunday  15 August 2010

 Once we saw price cascade down in the first hour on Wednesday,
it was a signal to get short.  Price did reach a near-term oversold
condition on Thursday that left behind a failed probe lower and
confirmed the oversold condition.  As price opened lower on Friday,
we took partial profits at 1076, from being short at 1095, staying
with the remainder because the trend is still down.  By the end of
the day, weakness returned, and that will be discussed on the 60
minute chart.

 What is apparent from the daily is that the low end close from Friday
argued for lower prices starting next week, which is tomorrow, as we
write.  It is clear that there was no need to "predict" or "guess" what
the market "might" do.  Developing market activity provided all the
necessary information to make a decision.  Knowing the trend was
down, the only decision to make was from the short side.

 The small bar at the end of the chart is the beginning of Sunday
evening session trade, and it is obvious that the bars from Thursday
and Friday, saying lower prices were likely, is coming to fruition. How
much lower and for how much longer, no one knows.  Just let the
market unfold and tell its story.

 We did place a few horizontal lines from previous swing lows that
may offer support as price declines.  What needs to be monitored
is how price reacts, once at those levels, and we will get important
market information about staying with a developing down trend, or
not.  Still, no guesswork involved.

 S&P D 15 Aug 10

 On the 12th, you can see the failed downside probe mentioned
earlier.  Price went to 1069 and then made a recovery, of sorts. 
What remained to be seen was the quality of a potential recovery
rally.  As price opened lower on Friday, initial market activity
showed responsive support, and it was shortly after the opening,
the large green bar on the 13th, that half the short position was
covered at 1076.

 We viewed at as a retest of the failed probe on the 12th, and that
meant a recovery rally was possible. It was for that reason that half
the short position was covered.   It turns out, after the next five
hours, the rally attempt was anemic, unable to make it to 1085 let
alone the 1089 area, the last swing high for that time frame. One
never knows, and there was no evidence of a turnaround to
warrant not staying short the balance.  Locking in profits earlier in
the day reduced risk exposure on what remains.

 You can see from the decreased volume there was a lack of
demand, [buying effort], and given that the trend is clearly lower in
that time frame, the burden is on the buyers to turn things around. 
Absent any effort from unwilling buyers, the market continued in
the direction of the established trend, lower.
 

 This perfectly exemplifies the importance of knowing the existing
trend, and on all time frames, in order for decision-making to allow 
for a greater probability of success in trading.  We do not know if 
pric will be higher by the time the day session opens on Monday.  
It may be much lower.  What we will know is how to respond once 
new information is provided during Monday's session.

 Staying short and with the trend, for now.

S&P 60m 15 Aug 10