Tuesday Evening 14 September 2010
This unexpected rally started from a change of behavior that
developed in the area of the ellipse that shows where price reversed
instead of continuing lower. The rally perfectly illustrates how smart
money does not like company. What that means is, from weakness,
price rallied day after day after day, with almost no set-backs.
"Smart money" is used to describe controlling interests in a market.
If anyone wanted to buy the S&P, they had to pay up or not
participate. Coming from such weakness, and within a larger trading
range, there was little reason to chase the market in an otherwise
negative environment. Smart money knows this, and they kept
rallying the market from the low of the trading range back to the high
of the trading range, all without a correction to make it easier to buy.
So far, there does not appear to be any ending activity, and by that
we mean a sign that the upward movement of price has come to an
end. It has stopped at the trading range resistance, as would be
expected. Tuesday's activity had the highest daily volume for any up
bar in the last two months, yet price closed marginally lower. The
upward progress was smaller, given the volume effort, so we know
that sellers were present at resistance to keep price from extending
higher. The close was about mid-range on the bar, and that, too,
tells us sellers more than matched the effort of buyers. [Ignore the
last bar, for it is overnight activity].
What can be expected is some kind of a normal correction lasting
one to three days. The dashed line across the 1100 area is where
support can be expected. Of course, that is our opinion; the market
may have other ideas. What will be important is to watch the
character of the next correction for it will provide important
information on how strong this market may be, or not.
Price is testing the drawn resistance line for the third time. The rally
from weakness to reach it was exceptionally strong and unexpected,
at least by us. If the reaction lower shows narrow trading ranges and
less volume, that will tell us that selling pressure is not there, and it
is quite possible to see the 1125 area, basis the December contract,
Because we are not in the business of predicting, all we can do is
see what current market activity is showing, which we just did; develop
a few possible scenarios, which we also just did, and then be
prepared to take action according to HOW the market responds, either
way. This is not an easy situation because there are conflicting
circumstances. The immediate trend is up, price just stopped at a
known resistance point, and the overall market is in a trading range,
and none of these three observations is in harmony with the other.
Our plan is to buy a weak correction. If the correction is not weak
and goes further back into the trading range, the selling a weak rally
may become the order of the day. The market will let us know.