MARKETS 2/26/09

Tonight's note should be brief. My point and figure did not update and I wanted to show the chart of the Dow because I believe it is more indicative of the state of the market as it is not weighted, so weights do not decline with the declining price of a given component. On the Dow we had a classic back up to the ice and the question is whether it failed to penetrate the support/resistance line drawn and a new down phase is about to begin.
To answer that let's look at the intraday chart. It is clear from just a cursory inspection that we do not today have the kind of support and front-running we had yesterday. If there was support it occurred overnight before the employment report. Please look at yesterday's action. I went back and drew in some red arrows, after 2, between 3 and 4, and after 6. These arrows show bars where after support has come in, the supply has pretty much dried up. A rapid and swift mark-up confirms the lack of supply. The pattern changes at bar 8, also marked by an arrow, but pointing down. At bar 8, demand dried up and was followed by a swift 20 point decline. This change in behavior continued into today and please observe the 5 small downpointing arrows after clicking and enlarging the chart. Each of these arrow marked bars is followed by a decline on high volume. This reversal of behavior, the exhaustion of demand, marks in my opinion a change in trend. Further, I expect that this new trend will last a long time and is the beginning of a large and important move. In many ways what we have seen the past two days is the essence of Wyckoff's theory of supply and demand determining stock price. Compared to the amount of work it took yesterday to exhaust supply, it took nothing today to exhaust demand.

MARKETS 2/25/09

As I stated in my addenda yesterday, it occurred to me driving downtown this a.m. that i had not expained the peculiarity in yesterday's chart --that the market was supported in such a way that shorts never got the chance to get out on a normal reaction and buyers never got the chance to buy on a normal reaction let alone a spring. If someone wanted to buy for a significant turn, they would pull their bids and let the market drop, not purposely squeeze shorts. Today we again witnessed support repeatedly in order to squeeze shorts. In addition since players could count on support, those that wanted to sell loaded the supporting buyers up. But lets do the details.
The point and figure chart shows nothing more than a normal reaction. This could become something significant but so far it has not.
The daily SPY has increased volume with a narrower range and a close in the lower half of the daily range. Supply was greater than demand. Moreover the index rose above the high for the two previous days and closed lower, again indicating supply was greater than demand. So far the bears are carrying the field.
As we noted yesterday the selling into the advance began at 6 and continued until D. This distribution prepared for the early morning drop that erased all of the gains of that rally in about half the time. Clearly supply is stronger than demand. The market finds support at 1 and 2 and again runs into significant selling at 3. 2 bars after 3 we clearly fill buyers on the way down. We of course make a higher low at a support line so the supporters do not have to take in all the stock that would be below 2. The purpose is to support as cheaply as possible and not to accumulate stock. When all of the stock below 756.75 is taken, short covering begins again up to 4. Supporting stock and other stock is pressed on the market to 5 and 6 giving back essentially the entire rally. 5and 6 are a higher low so again not too much stocks has to be taken in to support the market. Stock is again accumulated until short covering begins and then culminates at 7and 8. We upthrust and run out of demand. The support stock and other shares are now thrown back onto the market in a high volume 20 point decline into the close. This is true distribution. Watch out below.

MARKETS 2/24/09

So is this the rally that begins from the massively oversold position? Let us begin with the point and figure chart. The market moved 6 boxes down from 80 to 75 and rallied 3 boxes up. Entirely normal. In fact the bounce came exactly where one would expect off the old lows.
Now lets look at the daily chart. Today was an inside day. We rallied to close near the high on higher volume and a decreased range compared to yesterday. In other words although this very easily could be the beginning of a reversal in trend, the resistance to the upward move today was greater than the resistance to the downward move yesterday. Yesterday we went down easy compared to today.
Finally lets turn to the intraday chart, this time of the futures, because it is easier to label.
After opening higher we fall on high, climactic, volume to 1. This exhausts the supply as shown by the decreased volume with the high end close at 2 and the black bar immediately after 2. The lack of supply triggers buying and short covering leading to the sharp rally ending at the blue resistance line. Demand takes a breather and prices fall on diminished spread and diminished volume to the spring at 3. The low at 3 coincides with the point where demand kicked in 2 bars after 2. Double click the chart to enlarge it. The bar after 3 is a decline that failed due to lack of supply and that triggers an uninterrupted rally in black ending in a small low volume reversal bar. No serious selling yet. At 4 the volume and supply have evaporated and the next bar,5, is the widest of the day, going up easily and breaking through resistance. From 6 to 7 we have difficulty advancing despite the strong volume, but the supply drops off rapidly to 8. The bar after 8 advances sharply without the spread of 5 but with about the same volume. 9 shows shortening of the thrust but again selling falls off on the tight reaction to A. The advance to B does not have any of the volume spikes nor the wide ranges of previous advances. The rally is tiring. B to C is the first decline on increasing and increased volume and the advance from C to D is the first advance on large volume that fails to make a new high. Supply is overcoming demand. More selling from D to E.
After 5 the action is characterized by heavy selling into the advance. Thus it is far from clear that the long anticipated rally has begun. Whether the bulls or bears win this small battle is yet to be determined.

ADDENDA: Bar 1, the spring between 6 and 7, and bar 8 are all bars where the market is prevented from going down or having a normal reaction. If one were to manipulate to trigger short covering, say before a President's speech or during the chairman of the Federal Reserve's testimony, this is how one might do it.

MARKETS 2/23/09

Lets begin with the point and figure, which is 1x1.  After a back up to support now resistance at 80,  another below normal extent rally, we proceeded down to 75. The lack of buying power is evident in the weakness of the rally and the downward trend on the the point and figure remains intact.

Moving to the daily SPY, we engulfed Friday's price action and closed on the low with high moderate volume.  Prices from the point of view of the daily moved lower easily and with no resistance. Whereas Friday I showed the large resistance to an upward move,  today there was no resistance to the downward move.

The intra day confirms the lack of resistance to the down move. From the opening until 1PM we moved steadily lower and could not have rallied more than 0.4 points. A rally of 0.9 points begins at 1PM without any consistent increase in range or volume.  Around the close some support came into the market and prevented a new low price for this bear market.

For a long time now we have seen buying for the purpose of supporting the market, or buying in spurts of short covering.  Until that changes, until there is evidence of real demand, the line of least resistance will remain lower and there can be no change in trend.  There is no real demand to stop the force of supply.

Markets 2/21/09

So have we made the long anticipated test of the lows? Please observe the weekly chart.  The trend by Mr. Wyckoff's definition is clearly down with lower lows and lower highs. The close was at the lower end of the weekly range, volume was moderate given the holiday on 2/16. On the weekly chart we have no warning of a change in trend and it is unlikely that the trend will change without any evidence on the weekly chart.

The three box reversal point and figure similarly shows an intact downward trend.  All the rallies beginning with the rally from 112 to 127 look like induced short covering and undoubtedly we will get some more of the same but there is no evidence right now for a change of trend.

Moving to the daily chart,  I have repeatedly pointed out the disappearance of demand for stocks, often followed by overwhelming supply days.  To make a bottom I would like to see some evidence for the disappearance of supply.  On Friday we had a small range,  high volume day with a close near the top. Was demand overwhelming supply or did supply overwhelm a rally attempt? With this volume supply certainly has not disappeared. The inability to get anything but a few stops above Thursday's close makes me further doubt the former possibility.  We are probably in a sell rallies mode.  The small trading range we broke down from had a range of 7.90 points(87.95-80.05.)  We broke 4.32 points beneath its low of 80.05, more than half the extent of the trading range.  David Weis believes the furthest extent of a spring is no more than half of the trading range.  In this as in all things I believe him. A spring therefore is unlikely.

The intraday chart confirms our hypothesis that supply overwhelms demand.  At 75.77 a low is made with good stopping volume for the time of day.  The ensuing rally has slightly more volume than usual.(Does someone know something?) At 2:15 an announcement followed by some made to order short covering.  Supply almost immediately overwhelms demand with the two red reversal bars at 2:25 and 2:50.  At 3:20 the demand is exhausted.  During the three last bars of the day on a close basis we rally 0.4 points on 44 million shares.  A large effort having a minimal result.  Rallies again are sold and supply again overwhelms demand.  

MARKETS 2/19/09

Today was the third day we are in a spring position on the SPY. In general we have 4 days in the spring position to make a move or the spring fails.  Thus far we have not had any demand.  Rallies since February 9, have not managed to retrace  the usual 50%.  Today we nicked the upper edge of yesterday's range and failed to develop upward momentum and closed below yesterday's low, unable to find support or rally power there.  Volume fell in a narrow range day, showing that there is little interest in buying stocks.  Unless some demand enters tomorrow, I believe we will penetrate the November lows and move much lower.

MARKETS 2/18/09

Please look at the daily chart of the SPY below. Click to enlarge.

Today had a small range with less though still substantial volume and a close in the middle. We are in spring position, but will we spring?  To answer this question please look at the last hour on the intra day chart above.
Please look at the intraday- 5 min chart -above. Notice the attempt to rally at 2:55 on the largest range bar of the day(excluding errors).  For the next hour the  SPY stays within a .5 point range on high volume as the rally attempt is quashed.  Supply is overcoming demand. Thus far the market's action indicates that the spring will fail.

markets 2/17/09

As I just returned from vacation to find my computer infected with a virus, please excuse the change in format.  On the daily chart the long expected breakdown occurred today. Note the failure of demand and follow through on 2/9 and 2/13.  Today we had a large volume breakdown with a low end close.  On the intra day please note the very heavy selling into the close and the failed rally attempt which preceded it.  This was serious and determined selling.  Finally the point and figure shows clearly the breakdown from a long trading range. A minimum count along the 84 line calls for a low of 73 to 70, but I really  not know how to count this properly. All indications then are for a test and possible break of November's low.(click on images for a larger view

Lets begin this brief note with a look at the SPY. Today we moved on lower volume to about the 1/2 way point of the previous little down move. Although we closed near the top , smaller range and lesser volume suggest decreased demand.
We can see the decreased demand on the intra day by comparing the upwave totals today with yesterday's. 141 and 152 today against 220 and 261 yesterday. Please observe the evidence of heavy supply from the buying climax at 2:15 until the close on your own.

Pound 2/2/09

The Pound rallied to its resistance on Friday only to fall all the way back to its minor support today. We closed in the upper half of the daily range but beneath the closes of the past two days. The range it seems to me suggests ease of movement down, but much depends on how we move from the pretty much midlevel close tomorrow.

Markets 2/2/09

Looking at the SPY bar chart, we opened lower and rallied all day in a small range, with low volume, and lower close near the high, . This looks like a rally that failed, lacks demand, but we can only gain more certainty by examining the intra-day chart.
We open lower on low volume and then rally sharply with increased spread and relatively high volume, 171 wave volume. This looks like short covering.(hat tip Gary Fullett) The same kind of jerky up move ends the waves at 261 and 220. Short covering again. Notice that these numbers 171, 261 and 22o are high and in fact higher than any of the down waves of the past few days. We however make minimal upward progress and cannot even close higher on the day. There is too much resistance, or selling into, the short covering up move. The effort up is not proportionate to the result. Put differently there is no ease of movement up. We have had no ending action, the trend remains lower.

Pound 2/1/09

Please consider whether the during rally of the past week or so the effort is proportionate to the result. Will prices muscle into the trading range or will they fail and move down to test the Pound's previous low at 1.05 or so?

click on chart to enlarge it.

Markets 2/1/09

I would like to begin with my addendum 1/29. A basic Wyckoff principle is supply and demand. A careful reading of chapter 7 in the Wyckoff course shows that when demand was exhausted on March 24,1930 the down move began. Mr Wyckoff used as evidence the inability to make a new high on 3/24 and 3/25, but the clearest evidence is the low volume on the rally which fails to make a new high. The volume on 3/24/30 was the lowest full trading day volume in many weeks. The purpose of a range of distribution is to exhaust the demand and by moving shares from strong hands to weak hands to create more potential supply.
We are now at the end of a 8 week trading range, see SPY chart(clicking it will enlarge it). On the largest Wyckoff level, just gross price movement we made a high 12/08/08 and only a marginally higher high on 1/5/09. That is bearish. That we break the low of the trading range also is bearish. To rally 50% as we did is the expected bear market recovery. Further the inability to get back into the upper half of a trading range often occurs before the fall through the bottom. Throughout this range volume decreases on rallies and increases on declines, a sign of distribution.
On a more specific level, 1/28 we broke through the top of a little week long trading range and generated little volume or demand. Demand was exhausted at about a 50% retracement, far below a new high. If you look at the intraday of 1/28 the peaks are made on modest wave volumes of 96 and 31, right after an fomc meeting when volume is usually huge. As mentioned earlier the rally into the close on 1/28 was far too much effort for the result and confirmed supply was overwhelming demand as was evident in the previous waves. In these previous waves the wave volume on the declines was much higher than the wave volume on the rallies. Just as the wave ending with a total up volume of 31 on 1/28 shows an exhaustion of demand so on 1/29 demand was exhausted after each small rally. Further we broke back into our small week long trading range on 1/29. With no demand, needless say the trading range tops offered no lasting support.
As of 1/29 we have all the evidence we need that distribution is about complete, that demand is exhausted and mark down can begin at any moment.
Just looking at the wave totals for 1/30 shows a change in behavior, albeit subtle. Until the last 20 minutes the highest volume total on a rally wave is small 103, not close to 177 on 1/28. Others are lower too. Further the wave totals for the declines are all much higher than on 1/28. Please compare the time spent on rallies and the time spent on the much steeper declines for further evidence of how much stronger the selling is than the buying. There is not enough demand for active market players to sell their share on the rallies, like on 1/28, so they are selling them actively and quickly on the declines. The market is saturated and demand from the few buyers is easily filled. This is the beginning of markdown on the smallest intra day level.
If we look at the 15 minute chart, we see the ease of movement is clearly down. Look how the declining bars are longer than the rally bars. Please turn your attention to the last two bars on the 15 minute chart. Notice the very high volume. We do not believe this is demand overcoming supply because the range of both bars is less than the preceding down bar. In fact supply is squashing the attempt to rally.

Finally on the daily SPY chart on a macro level volume and range increase Friday with a low end close, again showing the sellers are in control.

We now need a break down through support on heavy volume to confirm our hypothesis that demand is exhausted and markdown has begun.