The spy rallied all day with the only significant break on the close. The volume on this holiday shortened day was very light. There was little selling pressure and especially in light of the last few posts, I would have to say that demand aqain failed to enter the market.
I want to pick up with yesterday's post concerning the dollar. I want to emphasize that the significant market event from my point of view in December 2008 was the largest range in the dollar index in 14 years. Whether this was due to quantitative easing or the temporary abeyance of hedge fund liquidation, and repatriation of dollar loans, I do not know, nor do I particularly care. It could be both, it could be neither. It might not even be knowable. With this singularly large range, the markets own action tells us its likely future. That future contains a dollar crisis. It might not be tomorrow or next week, but this range is like an earthquake tremor. It tells us that our house is built on a large unstable fault. For whatever reason we might have thought the fault was present, but now we know. Because of incipient dollar weakness today I want to look at the gold stock index gdx.
The gdx bottomed 10/23 - 10/28 on high but not extreme volume. The market then rallied to its support/resistance at 24.68.
The volume on this rally was as good as the last stage of the decline to 10/23. Just as in the es when we saw on the intraday the change from demand in control to supply in control on the gdx over these two weeks we just saw the opposite except it is on a daily chart. The demand petered out 11/5 and prices fell on suspiciously high volume (indicating some hidden support) on 11/6. Prices then rallied to 11/10 with demand drying up, small range and low volume. Prices now gapped down the next two days in a row but the volume never rose to the level of the liquidation ending 10/23, 1024. The force of selling was now receding. 11/13 was an outside key reversal day with a large volume and a 4 point range from low to high. This very large range tells us that the line of least resistance is up. The low of 11/13 is tested in a successful spring one week later 11/20. The true range 11/21 is an even larger five points. The sharp upward move with high volume of 11/21 and 11/24 constitute a sign of strength. The market is now telling us by its own action that it will go up far more easily than it will go down. We now run into resistance above the high of 11/10 and beneath an area of old lows. Prices again fall back and the market's battle between sellers and buyers is resolved by a spring 12/05 with a close at the top. The bullish action is now unmistakable and prices rally 60% over a week and a half. 12/16 the ascent becomes vertical on very high volume and a range of 2 1/2 points. There is some profit taking on the advance and 12/17 we have a reversal day. Prices fall sharply on high volume with a close above the lows 12/18, and 12/19 there was no downside followed through. !2/19 had virtually the same volume but a much smaller range than 12/18 , demonstrating good support. As a result prices gapped higher the next morning only to sell off, closing at the low, Volume is half the level of 12/17 and 12/18 telling us that the force of supply is now diminishing. Prices are supported the 23rd and 24th on narrow inside days with closes near the top. The lows of the 19th through the 24th are gradually rising. A tremendous amount of supply was offered between 12/16 and 12/19. Price gave up far less than 50% of the rally of 12/05-12/17 and have not even fallen back to the breakout level of 24.77 This selling was taken by buyers and when the selling is done prices should resume their advance.
