addendum 1/29/09

Just a brief Friday evening note. The purpose of distribution is to exhaust all of the available demand within a trading range.  The very low demand of 1/29 coming on the right hand side of  a 2 month trading range I believe unless demand suddenly appears shows the distribution is complete.

Stock indexes 1/29/09

Without being an I told you so, I noted yesterday that the effort on the final rally yesterday was far greater than the result. While I could not predict that the demand exhausted itself in the buying portrayed above, the lower opening was not a surprise and was a definite possibility. I wrote earlier in these posts that an upside breakout from our tiny trading range would be overwhelmed by supply and that happened yesterday.
As has been described for the past week or so on an intra day basis, rallies were overwhelmed with supply but the active selling that would push prices lower never really kicked in. So we have the seeming contradiction that prices moved higher but supply was overwhelming demand on rallies. Perhaps this is one of the meanings of selling rallies, or it might a variant of selling on a scale up. I mention this because this is exactly what happened today, the rallies were actively sold.
So let's get to some of the details. The e-mini gapped down on the opening and continued to drop on good but not extreme volume. Demand on the first rally attempt, 8:45 and 8:50 was used up quickly and we then fell sharply with little resistance to make a temporary bottom on climactic volume(60,000 contracts.) Remember --exhausted demand leads to a sharp fall in price due to a lack of resistance.
At 9:05 the rally begins and from 9:15 to 9:50 the 5 minute bar closes are all around 854 +or- 1 point, supply is squashing any attempt to rally. We break through this small range to the upside with a minimal increase in volume. Prices fall back without making a new high for the morning and again attempt to rally. Demand is now exhausted as this wave has a volume of 21,000, less than the supply of 34,000 on the previous down wave. The small bar still under the 21 is a failed rally attempt. Its low volume highlights the exhaustion of demand and prices on the next bar fall easily on low volume. That there is little demand left to offer resistance to the move  is further attested to by the next 3 bars. These small bars are all failed rallies, all have small ranges and two have low end closes. In such a manner we continue to drop until finding support at the level of the high of 1/26, shown by a narrow blue line.
To sum up, we opened lower and on the first attempt to rally used up demand and then fell sharply. We found support and attempted to rally with good volume as shown by the wave numbers in red(120,117). That rally met great resistance and despite the effort made little progress. Eventually demand exhausted itself and prices declined with little effort and little resistance. This pattern continued throughout the day and if it continues will define a new down trend.

THE TIME IS GETTING LATE SO PLEASE FOLLOW UP ON THE BRITISH POUND ON YOUR OWN. INTRA DAY WE HAD AN UPTHRUST--BEARISH-- AND ON THE DAILY SHORTENING OF THE THRUST-- ALSO BEARISH --AT THE RESISTANCE. AS EXPLAINED YESTERDAY THIS IS A VERY IMPORTANT CHART.

British Pound

The Pound fell through its supporting lines on very heavy volume, bottoming at its lowest price in more than 20 years. Taking out 20 year lows screams danger. We have since rallied on heavy volume, but decreased daily price range. Today we had the smallest spread from high to low in 9 days and high volume at the resistance line. Supply was overcoming demand. Given the fragile condition of this currency, another crisis could be looming.

Markets 1/28/09

Today was a difficult day for the trader who wanted a good night sleep. The market rallied 2 % overnight. The above chart speaks for itself. The market rallied throughout the session and volume and support came in where it should right on schedule. We ran out of demand in the bar with 31,000 contracts, but no significant supply flooded the market. The last rally of the day was notable for the extreme amount of buying-- 189 +51+12=252 with modest upward progress.

In the second chart I just wanted to show that the market ran into resistance at approximately the 50% retracement and at the top of the large supply bar-green dashed line. We moved through the lower resistance lines on moderate volume to a high end close. While bullish, this action is not yet fatal to the bear case.

Markets 1/26/09

Yesterday i said that we could not punch through resistance without a spurt of volume and that once we did so, if we did so, that supply would overwhelm the demand. Both occurred this morning. At 8:45 we ran through the resistance at @838 on a volume of 70,000 contracts, doing a total of 131,000 in the first 3 bars or 15 minutes. We corrected for 1 bar and a volume of 42,000 and then on the next 4 bars with higher closes the total volume reached 181,000 contracts. The long bar with 76,000 contracts looks climactic and the angle and speed of the advance make us suspect that distribution and filling up of buyers who see and jump in when such action is occurring. We react for 2 bars and 62,000 contracts, more than the previous reaction but do not give up much ground in terms of price. Demand remains high on the reaction, filling up those buyers who wait for the reaction to buy. The next wave up generates only 33,000 contracts, indicating demand is drying up and the demand on this up wave is less than the previous waves supply. The market falls on 24,000 contracts almost equal to the demand. We now rally on 20,000 contracts and fail to make a new high and in fact do not rally back 50% of the loss of the previous bar. Demand has clearly been exhausted by this sharp up move and we now fall beneath the zone of distribution(lower limit is 844.25.) confirming that demand is not sufficient to hold prices up. A weak rally begins 9:50 and is restrained by the point where supply first overcame demand 847.50 in a nice reversal bar at 10:05.
Prices are now held in arrange bordered by the resistance now support at 838.50 and the bottom of the zone of distribution 844.25-.75. When prices fall beneath the support at 838 and subsequently close there, the weakness is confirmed.
The daily chart of the SPY shows a small bar with a low end close and the lowest volume in 2 weeks. This bar too indicates supply overcame a diminished demand. The resistance at 85.5 checked the advance and the close back in our small trading range of last creates a small upthrust.
Tomorrow is the FOMC meeting I believe and we will see ...
This chart however looks more bearish every day.

Sectors 1/25/09

Frequently, when the market is making a bottom one or more sectors has already made a bottom and is breaking out on the upside. A quick perusal of my sector charts, the list comes from decisionpoint.com., shows only one sector to be breaking out and that is Gold Stocks. GDM or GDX is behaving very nicely and in an earlier post, I discussed its bullish behavior. By far the weakest last week was the insurance stock index.
Looking through the Decisionpoint chartbook of ETF's shows gdx and slv to be the strongest and the financial stocks--SKF and regional banks RKH to be among the very weakest.
Very graphically the analysis of sectors demonstrates a movement from financial intermediaries to precious metals as a store of value. This cannot be bullish for equities in general. The lack of any other leadership confirms the bearish conclusions we made in discussing markets 1/25/09 in general.

MARKETS 01/25/09

Let's begin by recapping the past 7 market days in the SPY. Support began as noted on 1/15 with a classic reversal bar on high volume. Instead of an automatic rally on 1/16, we made little upward progress on a narrow bar with good volume. The pressure of supply was not lifted by a the"washout " that creates a true reversal. As noted in the blog of !/15, the financial stocks which are the downside leaders suspiciously did not participate in the reversal. The supply carried into 1/20, holiday intervening with a sharp sell-off again on good volume with a 5+point spread from high to low. (Although not Wyckoff, the down/ up volume ratio was a very bearish 20+:1.) The close below the low of 12/1 on 1/20 places us in a spring position. On the 21st all we can muster is an inside day, with a close near the top on less volume. The 22nd we have another inside day with a lower close, no follow through, but on higher volume. The supply has not diminished. On the 23rd, although we briefly move below the low of 1/22 on the opening we then struggle up all day and manage a higher close, the volume for the day is down. At no point on the 23rd does the volume of the advance come close to the volumes on the advance during the two previous days. In this whole trading range we have only punched through even the most minor intra day resistance with a spurt of high volume. Clearly there was not enough demand to move through the top of the trading range. In fact the difference in volume between 1/23 and the two previous days was the failure of this demand to enter the market.
Taken as a whole we have spent 4 days in the spring position which moves it from a potential spring to the "hugging the lows" category. That we have not been able to retrace 50% of the loss from 94 to 80 further helps to indicate that the trend is down. To summarize, I believe we have supply, a fall off in demand and an inability to rally, all telling us the next move will be down. In spite of all the obvious support we have not been able to rally through the top of Tuesday's range. The tightness of the range for the week, all contained by Tuesday's high and low portends a sharp move is coming.
Should the above analysis be wrong, then the action described would be bag holding, perhaps awaiting some news or other. In that case we must be on the watch for large demand to punch through the top of this trading range. To reiterate so I cannot be accused of fence sitting, I do no believe the persistent supply I just documented is going away. Even if we rally, we will run into supply that limits any gains.

MARKETS 01/21/09

The e mini gapped up on the opening and opened above the 813 support/resistance level. This was enough to tell any short term trader to get out of at least part of his position at the earliest convenient moment. After the opening we went down on high volume, tested the low of yesterday and then rallied weakly. The upthrust at 12:10 I believed was a shorting opportunity only to be proven incorrect a few bars later (12:35) when the market had a resurrection bar, reversing and closing higher than the previous bar. From this point forward, whenever the market needed help in overcoming resistance, it found the aggressive bids only to rest and then push higher on more aggressive bids. The day finally ended with a very large volume short covering rally.
Unlike previously, the financial stocks also found support today, I should say the american financials as the large british banks recovered the previous day's loss minimally. With today's rally the zone of support spreads out to 4 or 5 days and some kind of rally is possible. Volume and demand have waned on every rally since this trading range began in October. The small rallies on this decline in particular seem to me to run into way too much supply to have a large advance. If that supply should disappear and demand not evaporate...

Earlier I mentioned the large British banks. As is well known they may be nationalized wiping out shareholders. In addition Britain faces a currency crisis with the pound nicking its lows of the past 20 years. To emphasize the importance of range, which we discussed in dx chart, the august range from high to low was the largest in 20 years. Approaching the 20 year lows with high volume and a large range means they will most likely give way. Whether this banking and currency crisis opens a new chapter and dominates the American stock market or the bullish forces at work today continue to win in the days ahead is yet to be seen. Remembering the large range in the dx, perhaps this new chapter in the financial crisis will spread to this side of the Atlantic.

MARKETS 01/20/09

I do not have much to say today. As mentioned in the previous post, the financial stocks led the market lower, sharply lower. Virtually every e mini rally was on narrower or narrowing ranges and diminished or diminishing volume at least until the close. We broke through and closed beneath support very near the daily low.

I believe as mentioned in a previous post that the DX is running out of demand, but other scary rallies might be fortghcoming.

MARKETS 01/18/09

We have much to do this evening. First we will discuss the SPY and e-mini and then move on to the dollar index (dx), euro and gold. The SPY closed higher on a smaller range with less volume than the reversal day on Thursday. It edged up against support /resistance from the week of December 22,2008. Although demand is still ascendant, the smaller range tells us it is not as dominant as Thursday and the smaller volume indicates there is less of it. Bumping up against resistance the ease of upward movement suffered. As soon as we bounced off the support around 813 we ran into resistance. Intraday the market opened higher and immediately ran into steady selling. It fell easily until the spring at 11:25 and a weak rally began at 11:30. Demand was sufficient to move prices higher through minor resistance at 11:55 and 12:40. Price and volume spike at 13:10 and from the high of this bar the market battles upward with higher lows and highs until the close. Volume is relatively high indicating good supply but the demand does not waver either. As a result the gain from the top of the 13:10 bar to the top of this wave so far is a meager five points.This looks like absorption but we do not know yet whether it will be successful. Given the weakness so far this year and the continuing weakness in the financial stocks, which have led the market down, it is not yet time to change our bearish posture. Given supply and demand are balanced, leadership decides.

The DX as mentioned earlier upthrusted its retracement rally high of 1/6 on 1/15 and closed in the middle of a narrower range. This indication of supply and diminished demand was confirmed with the gap down opening and close beneath the previous 3 days' closes. In addition the up trendline was nicked in a warning shot but it held. If prices do not begin falling immediately, I would expect further confirmation of waning demand.

The euro as mentioned earlier retreated to its point of breaking out where it found support and even made a small spring just to confirm its strength. It has since rallied through the axis line that restrained upward progress at 1.3285 and has broken its down sloping trendline.

Gold also had a spring and has rallied through its support/ resistance at 829.80. Unlike the euro, it has not penetrated its down sloping trendline.

While it is not necessarily the purpose of this blog to make political or economic predictions, at this point I cannot resist. I have already mentioned that the record range in the dollar index for the month of December has serious implications. The Fed assumes we are in a banking and liquidity crisis, not a crisis of the dollar or external funding. At the same time educated opinion is beginning to see this crisis as a result of "global imbalances." Every other financial crisis since the second world was has resulted in a currency crisis and capital flight. Why shouldn't ours? How could a crisis caused by "global imbalances" not result in a crisis of the dollar and external funding? The chart of the dollar index, with the recent failure of its retracement rally supports these possibilities. 2009 will be the year of the Dollar, in my opinion.

MARKETS 01/15/09

Tonight we will go over a few markets but not in detail.
1) SPY + ES--The spy had a reversal bar on the highest volume in more than 1 month, after hitting support. This raises a question about the continuation of the trend. We came down on heavy volume, volume dried up at the bottom and we rose on even heavier volume. This looks like a classic reversal bar. It dos not mean we will start up but that the down trend has ended at least temporarily.
2) XLF--XLF closed solidly in the middle of its range. I believe if a significant rally were to begin here, this would be the first time since this bear market began that financials did not lead.
3) DX-- The Dollar index today in an upthrust position closed in the middle of it range. Ranges contracted in comparison to the initial upthrust. The euro and the Swiss franc have backed up to resistance, now support, and with the strength in the es rallied up.
4) GDX -- To be discussed in more detail this long weekend
5) GOLD-- Also moved up while in a spring position and will be discussed further this weekend.

MARKETS 01/13/09

The rally on heavy volume this morning after the opening in the es allows us to draw in the support line 860.25 and the resistance line at 873.75. The high is tested with a small upthrust 10:45 and then we move slowly down until 13:00, at which point we have a spring. Volume dries up in the ensuing small rally and in the bar ending 13:30 we have another more important spring with a close in the very upper part of the range on very high volume. A sharp rally immediately follows. Just as the slow response to the upthrust at 10:45 was probably bearish the immediate response to the spring at 13:30 is probably bullish, marking the possible end of the down move that began 1/6/09. We have possible ending action. Heavy volume propels the up move until 2:50 and there is a heavy volume sell off into the close. At this point the market was heavily supported(bar ending at 3:00) At no point today did we have evidence that demand dried up. In fact, the two up moves today around the opening and beginning at 13:30 have significant demand showing a marked change of behavior.
The SPY had large volume with a very small range indicating large support for the market. Gold, gold shares silver and South African shares are 4 of the top 8 ETF's. Perhaps gold will be the upside leader again. Gold shares remained particularly strong in this weak long decline, financials particularly weak, although C and JPM had reversal bars today, BAC did not and closed at its lows. On the other hand we have had very little accumulation at the bottom in the indexes.

Gold itself is in a spring position, and a close over 837(Feb) would be very bullish.
The euro again tested the creek it jumped as mentioned yesterday.
The DX pierced 84.98, its back-up high a few days ago but failed to close above it. This rally has troubles.






v .

MARKETS 01/12/09

Just a few notes. The spy fell today closing near the low of its range. Intra day the 5 min chart displays little demand. There was one good selling opportunity as described yesterday when we have an upthrust against support or resistance. At 12:50 we spiked upwards and at 12:55 against the resistance of 1274 we had the smallest range of the day on moderate volume. This was easy point to add.

The euro completed a perfect back-up to the creek, if the low of the day is not a bad print.

Similarly gold found support at its trend line.

GDX broke down. Its price and volume climaxed 12/16 and then had a spring 1/2/09. Today on a wide true range we attacked the support around 29. The Wyckoff count calls for a fall to the price between 26 and 28.

MARKETS 01/11/09

Tonight I will look at Friday' trading in some detail. There were many obvious places to sell short, but only one would have led to immediate sustained and large enough profits. The question is how can one recognize this opportunity and avoid the false starts. In other words, see the false starts as evidence of distribution and not the moment to pull the trigger. I will study the 5 min chart of the es for the period that the market was open 8:30-3:15.
The market opened higher and sold off rapidly on high volume. All closes were near the low of their respective bars until the reversal bar at 9:00 AM. An automatic rally ensues that is checked by the small axis line at 894.50 (9:10 am). The market again sells off on markedly lower volume, finds support in a narrow range high volume bar at 9:35 and has an outside key reversal bar on a spring at 9:40. The evident support triggers a rally, but we go up not so much on demand as on a lack of selling. The volume on this rally is even less than the decline coming into the previously mentioned test. Prices are bid higher on high volume, probably catching some shorts and enabling there to be large selling to new longs on an upwave (10:25) and a reversal bar with a small range and diminished volume (10:30) caps the move.
We now fall on less volume than we rallied on and find support at 10:50 and 10:55. We now rally on even less volume than before, spike to a lower high and then have another reversal bar at 11:15. The es meanders down on even less volume than previous waves down and just spikes up only to reverse on the next bar. It finds support quickly and now rallies again without any volume to speak of. At 1:35 we thrust into new high ground on relatively high volume for the day and then on the next two bars back up to test the support at at 896 and although we dip below it twice on both occasions we manage to close above it. Evidently this is enough support to trigger a stab at new highs which immediately fails. We now have three bars in which we attempt but fail to rally, implying demand is exhausted. Supply kicks in with the largest range and the largest down volume since the first half-hour. What makes this the place to sell is so much evidence for the exhaustion of demand. It occurs right up against the old supprt line at 900, which makes this trade very low risk. Up against resistance with no demand, what could be nicer? That exhaustion is confirmed by the supply bar with the largest volume and range as described.

MARKETS 01/08/09

Today was an interesting day in the snp. The low of the day was made before the opening and prices opened above their lows to supply at around the 900 level. The market falls until 9 am and then has a spring by one tick at 9:20. This is enough to signal bulls that they should be buying and the market rises on steady volume until we spike on what is the highest volume of the day prior to the closing minutes. This spike occurred at 9:45. The market drifts higher on diminished demand and falls sharply. At 10:35 the range contracts and volume shrinks slightly, indicating demand is entering. A small rally followed by a test triggers a rally with erratic volume which stops at exactly the point that the down volume kicked in, 902.25 at 10:30. The rally went to resistance and then sold off easily and with higher volume than on the advance. Prices are supported below their previous low and this spring triggers another rally. By 12:45 there is no supply pressuring the market. At 13:10 we have a rapid high volume advance which has difficulty going much beyond the earlier high of the day despite adequate demand. Supply again is overcoming demand.
I have difficulty determining whether today was rally that failed to make much progress or bag holding at the bottom. In light of the foregoing i would have to say the evidence supports the the idea of a rally that failed.

MARKETS 01/07/09

The SPY broke back down into its trading range being somewhat supported by the high of 12/1/08. On the intra day there was no significant buying all day.

The DX rallied all the way back to the point from which it broke down, and has dropped sharply since. This rally was notable for a lack of on balance buying at the "ask."

Gdx requires a separate discussion.

I made an error a few posts back where i said that citigroup had the weakest chart. That honor belongs to JPM

MARKETS 01/06/09

Today was a very interesting day. On the gross level, we had a smaller range day than yesterday, with volume running higher and a close in the middle. Supply overcame demand. Intra day we rallied in the first half hour on basically two high volume bars. The third bar about 8:55 also had very high volume, but the range contracted, as supply overcame demand. The bar ending at 9:05 stabbed to a new high and then reversed to decline on the largest volume of the day. The range of this bar i believe was also the largest range of the day, showing some ease of movement down. Heavy supply pressured the averages until 9:30. At 10:15 we began three waves up which failed to make a new high for the day. The first wave ended when demand evaporated at 11:55 and the second also when demand failed at 14:00. At that time another sell off began and volume increased with the price decline. Prices were supported at the same point to the penny as earlier in the day and then another rally attempt began. 4 of the next 5 closes are within one point of each other implying supply is overcoming demand. The upward push of prices was contained. I believe that this constitutes another bearish day.

MARKETS 01/05/09

The SPY today made a token new high for the move and closed below yesterday's close. Technically this is a reversal day, and must be given some bearish weight. Intraday, we witnessed the same failure of demand that occurred yesterday, but without the short covering. The market fell until 9:55 EST, supported as mentioned yesterday at 919 and then rallied for the better part of an hour. Both were on light volume, under 5 million shares in 5 min on the spy. Until a little before 2:00 the market whiled away in an even lower volume trading range and then broke to the upside making a new high for the move. Like yesterday this was an upthrust, with little obvious demand, ranges contracted and it ended with an outside key reversal. The market started down with closes at the bottom of the range on each 5 min bar,but never showed any ease of movement. Again the market was supported at 919 and then rallied into the close. Again as yesterday with the move to new highs for the move we were unable to generate demand. No supply overwhelmed the market either. By one of my little rules, we have four days to develop supply.

The financials are now the downside leaders, should the market break.

Tomorrow perhaps we will gover the euro fx and the dx and maybe gdx

MARKETS 01/04/09

Again a brief note. The snp is in an upthrust position and while it breached its resistance with an increased range from high to low, the volume on the cash Dow decreased. This suggests no significant demand. A very disproportionate amount of the volume took place at the ask implying short covering. There was little supply pressed on the market all day until 2:45 at which time we had three closes about equal on high volume, supply overcoming demand, followed by the largest bar of the day with the heaviest volume. In this bar more supply was pressed on the market and the market was able to move down smartly. To sum up, having broken through our pivotal point at 919.25, we saw no increase in demand, but instead an increase in selling. An open below 919.25 would be very bearish. On the other hand we might expect a retracement to 919 or theabouts and then an attempt to rally. That attempt will tell much. The financials remain weaker than the market as a whole.

The dx had a small upthrust during a back up to the ice. This is a classic Wyckoff place to sell short as the risk can be very small.

Finally, the gdx had a small upthrust as well. While putting us on guard it is not serious yet. With almost all recent closes at the top of the daily range, this looks like absorption rather than distribution so far. There has been no ease of movement to the downside in gdx so far.

MARKETS 01/04/09

MARKETS 01/01/09

The SPY hit the zone of selling that turned advances back twice before. While the close was in the upper half of the daily range, it was below the high of the day. The range narrowed and volume increased, all indicating that the market is again running into supply at these levels. The futures closed in the lower half of its daily range and as we shall see, it ran into obvious supply.

The futures bottomed around 12 noon on 12/29. They tested that bottom twice, at 1:15 and 1:45, each time with less pressure apparent and then demand kicked in, allowing prices to rally vigorously at 2:05 and 2:55. The es then rallied with little supply pressuring the market and some demand until 12/31 at 1:05. After this all rallies quickly spike on elevated volume and fall back rapidly. 2:40 is the last rally attempt and the selling that ensued caused the largest break since the move began 12/29 and probably could be a sign of weakness on an intraday chart. The small intra day demand line was also broken.

On the futures thus far the action does not seem like absorption of over hanging offerings but rather distribution. I believe another attempt to rally can be anticipated and we will keep an open mind, but so far the stabs at new highs for the move with rapid fall backs seems like distribution. Time will tell