Wednesday Evening 6 October 2010
Wednesday was a small range day. Normally, it would be a red flag,
just as it was in reverse for corn and wheat, two days ago, [see Corn
And Wheat - Low Risk Buy, discussing the danger point, click on
http://bit.ly/9OkVTk]. However, the situation is not quite the same,
despite the reverse similarities. It goes to show that the markets are
not mechanical and require logical interpretation. Instead of asking,
"Where were the buyers?" on Wednesday, the more pertinent question
is, "Where were the sellers?"
There was a lack of demand, as can be determined by the decrease
in volume activity, but in the absence of demand, sellers did not step
in to take advantage of the buying void and push price lower. That is
key in the chart. Well, there are a few other keys, and we will address
The daily chart shows a band of resistance, delineated by the failed
early May rally high, which is the lower horizontal line, and the last
support in late April, broken in the second trading day in May, is the
top horizontal line. The price range would be 1160 to 1171. Price has
stalled at the lower end, currently. We had those same points picked
out back on 20 September, [see chart, S & P - Rally Gets Underway,
click on http://bit.ly/aGxZdC].
If volume were greater, it would be easy to say that sellers met
and overcame the buyers' effort, but that is not the case. On 26
September, we said price could head back to retest the April 2010
highs, [see S & P - Heading For April Highs?, click on
http://bit.ly/cKPVOm, first few paragraphs], and unless and until
selling comes in on increased volume that pushes price lower on a
wide range bar, that scenario comes back into play. It is why we say,
"POMO Still Lives." [POMO = Permanent Open Market Operations
whereby the Fed feeds money into the banking system, and the
banks buy options to support the market. After all, elections are
coming up, and the corporate federal government will do all it can
to save face against the embarrassment of a declining stock market.
It is also good to take a periodic look at the next higher time frame
to see what it says. To the weekly...
We have drawn a set of parallel lines, starting with the bottom one
off the July and September lows. The top line is then drawn parallel
to it from the August high. It acts as an oversold indicator, and price
is right about at that mark. [Oversold does not mean price has to
stop and/or reverse].
While there are reasons to suggest caution at current levels, what
with POMO and the November elections, we suspect the rally will
continue. That is not a certainty, and in the interest of properly
reading a chart, we are being cautious and not chasing the market,
No position, currently, subject to change.