Price activity last week was the weakest since the March madness rally began, both in terms of time and
price.  The range was the largest decline down, the close was low end, and volume increased to the
highest level in months, all signs of sellers stepping in and taking control from the buyers.  The stage was
set from the weak high, pointing to the small ranges of the previous two bars from the end, and the
second bar in particular.  Price made a new high for the rally, but the range was small.  This one little bar
is replete with a message from the market. 

We can see from it that buyers were spent, unable to extend the range higher.  The close was under the
opening, and it was lower than the previous week's close.  Plus, you can see that volume picked up, at the
same time.  The pickup in volume tells us that sellers were stronger in activity than buyers, and this is
proven by the lower close.  Sellers won the battle of the bar, but this specific bar occurred at new highs
where buyers are supposed to be in control.  Market activity told us otherwise.  The stage was set from
the second and third bars that led to last week's substantial sell-off.

 A trendline has been drawn up from the March/July lows, and that is where price held on the decline.
Knolwedge of the trend is the most important piece of market information you can have.  The weekly
trend is up, so price should hold at expected support, and it did.  BUT, the trend has been weakened
for reasons just described.  The volume increase on a large price decline suggests the trendline may
soon give way.

The daily chart gives greater detail.  Price closed under the trendline, [Friday, second bar from the end],
the same line shown on the weekly chart.  [Contract changes since March accounts for the difference in where price closed on the different time frames, one above, one below].  The intra day activity is not
shown here, but volume activity late on Friday was unusually high for the time of day, and that in itself
is a message not to be ignored.  The increased volume occurred as price came cascading down with
impunity.  Buyers were unable to stop the onslaught.  Here is where knowing the trend of the various
time frames is so important.  We saw that volume as a potential mini-selling climax that might stop the
decline.

Why?

If the weekly trend is up, support should hold...and it did.  It may be in the tenth round and floundering
on the ropes of support, but the trend is still up in the larger time frame.  That tells us not to press too
hard on the smaller daily time frame because it conflicts with a larger, controlling trend.  Combine that
with the mini-selling climax, and a possible reflex rally may occur.  There is more that can be added to the
mix.

On 1 October, there was also a relatively large sell-off.  On the intra day chart, [not shown] the last 60 min
bar closed  mid-range on increased volume.  That says there were buyers at the lows...as well there
should be...  Why?  Because at that point in time, the daily trend was up.  Next day, 2 October, price
gapped open lower, but the first 60 min bar rallied and closed high end, [a show of strength] and a trading
range developed for the remainder of the day.  There was no more downside follow-through.  Next
trading day, Monday 5 October, price opened unchanged and proceeded to rally above the little trading
range and did not look back for over 80 S&P points.  Knowledge of the trend is vital!

Guess where Monday's decline stopped?  Right at the little trading range from 30 days earlier.   The
market showed support back then, and because of the weekly trend and support trendline, it showed
support once again, despite the more negative daily activity. 

The potential mini-selling climax was confirmed by Monday's lower open and rally to close near the high
end for the day, AND above the large volume selling from Friday's close.  There was little reward for all the
selling effort after such a steep decline.  That observation calls for caution.

As an aside, the reason for calling for a change in the daily trend as no longer being up can readily be
seen in the volume activity for the first two weeks of October.  It went down as price went up.  Volume
being the energy behind a move, there was very little energy!  Contrast that with volume activity for the
second half of October as price declined.  Volume increased.  Sellers recognized the weak top at the high,
and they became more aggressive in noting the inability of buyers to retain control.  The market messages
are always there.  Sometimes they are not always obvious, but they are always there.

We drew a dotted horizontal line extending into the future to represent where  a retest rally may
encounter resistance.  It starts aroung the 1056 area and extends to the 1062+.  Where will price hold?
We do not know for the future has not yet happened, nor do we need to predict.  We can draw some
obvious inferences from the gathered facts to see where price MIGHT stop on a rally.  We will know
better as present tense market activity develops, and both price ranges and volume will tell us if a rally is
weak or not.  The market always advertises its message.

Because the daily trend is no longer up, and the intra day trends are down, no long positions will be
taken.  [Rule: Never go against the trend in the time frame you are trading].  Instead, we will wait for
some indication to go short on weakness.

The market never disappoints, if you are patient.