Tuesday  16 February 2010

 Two trading days ago, S&P was 30 points lower.  This was quite a rally following a 107 point drop.
Today's rally was more of a lack of supply [selling], than from demand, [buying].  The distinction is
important because it gauges the character of the market.  What is a lack of supply rally?

 When one side of the market is absent, the other side can move a market more than otherwise.  The
biggest clue to explain the extent of this unexpected degree of rally has to go back to a week ago
from last Friday, what we called a mini-selling climax.  What we can now say, based on the extent of
the current rally, is that more buyers were in the market than we thought was the case.  See the
article, S & P - How To Find Potential Support, [click on http://bit.ly/cNzIIW, scroll past the third chart,
comment made in third paragraph.].

 The fact that that Friday's close was just marginally lower means the volume change is more heavily
weighted to net buying.  That lends more strength to the overlapping bars depicting a struggle between
buyers and sellers, and the upside breakout confirms that buyers gained the upperhand.  The fact that
volume was less today than it was last week tells us that the market rally is attributable to a lack of
sellers in the market.  With little to stand in the way, buyers were able to extend gains to the almost
20 point rally that occurred.

 As an aside, the markets have changed behavior in the pat few weeks.  They act more like the story
gingerbread man who says, "Catch me if you can!"  There are no set backs to buy or weak rallies to
sell.  The markets are simple moving in fast spurts.  Last Friday's intra day rally from 1060 to close at
1079, while still keeping within a trading range, and than adding another 20 points today, speaks to
that kind of change in market action, and not just in the S&Ps.

 Yesterday, in the article, S & P - Price And Time, we said to expect 1104 to be retested, with 1095 area
as the half-way point, [click on http://bit.ly/9l72AJ, second to last paragraph].  There are two caveats
of which to be aware in the retesting process.  1. The speed with which price is approaching potential
resistance is fast.  This means price can possibly overshoot it.  Possibly does not mean probably, so
one has to monitor HOW present tense market activity acts at the 1104 area, if it is reached, at all.
2.  The decrease in volume tells us there is not a lot of strong buying behind the rally, and that makes
it weaker, in nature, which would make the 1104 area a potential sale.

 We also have the most important information: knowledge of the trend.  The daily and weekly trends
are down, so the short side on weak rallies is favored.  The intra day trends are up, and they turned
up rather quickly and unexpectedly, and that is cause for concern for the larger time frames are more
controlling, [daily and weekly].  A point and figure count runs to 1108, as potential rally energy.  We
need to see the intra day trends start to turn down before engaging in any selling.

 Trading with the primary trend, which is down, means we will be watching the character of any further
rallies in the next trading day(s), looking for smaller bars on a rally, and a lessening of volume.  This
will be the market's way of telling us that the rally is expending its effort.  Then, we will look for the rate
of decline bars to become wider with stronger volume, an indication that sellers are starting to resume
control.

 Sounds like a plan.