Markets 5/29/09

So let's begin our exercise. The close Friday was interesting and we will get to it. The daily Dow had some selling the first week in May followed by a low volume decline to 8200. Volume did not pick up on the rally back to 8600 and then fell again on the decline to 8200 after a volume surge at the top. We closed this week in an upthrust position. I must point out that with the exception of the high volume at the top of this range, this market has done nothing bearish! We could not even decline into the previous range. There have been no high volume large range price breaks on the daily chart. In fact the 60 minute $spx pnf chart which has been one of our best prognosticators, looks very strong having rallied away from a hinge at 900. The count on this chart does not give much cause, sadly for the bulls.

The hourly chart of the SPY shows Friday to have been lackluster until the close. The last 5 minutes of every month has unusually high volume especially in the futures and this month it caused a price explosion. Massive numbers of stops were triggered and we will discuss it shortly. However on this chart please note that it closed well below the resistance line so there was huge selling into the stop explosion. The trading range looks like it will continue.

Instead of looking at the 5 min SPY today I wanted to look at the 5 minute emini futures. As I have mentioned frequently the futures are running the stocks and this at its worst, which we saw Friday, resembles off track betting determining the horse race. Turning to the chart I have labelled certain bars 1,2,3 and they are heavy selling. 1 and 3 come in at about the same price, so we have reason to believe it was the same group that was for whatever reason liquidating longs or getting short. With all of this heavy selling as a preamble, I believe that the move to trigger short covering was a way of either selling out a long position for whatever reason or getting short. Someone had alot to sell and they did so. If you look at the 5 minute SPY chart, I have labelled a.b.c where it was supported around the previous day's close. Clearly someone did not want it to go down on the day but wanted to sell more higher. Please note that the final bar on the Spy closed in the lower half of its range. Supply grater than demand.

To sum up, I believe we are seeing distribution. This does not mean we cannot go higher or we must go lower. It means large amounts of stock are being pressed on the market, but not enough yet to break support. If "they" can sell higher they will gladly.

Markets 5/27/09

Sometimes these charts can be so cute that is almost hard to believe, but since this is just a blog and not real life we can discuss them and see where it goes. I have emphasized over and over that Wyckoff considered even the smallest penetration of support to be significant. Last Wednesday the market made the slightest of upthrusts on very heavy volume. On Thursday the market penetrated its previous low in this trading range. This lower low marks a tentative downtrend. Yesterday's rally tested the upthrust and today with no follow through marked this as a lower high. By our little algorithm we are now potentially set up for a sharp move down.

If we now turn our attention to the 5 minute bar chart, the large red bar at 91.75 is heavy supply. Further with the move to 90.93 price penetrates the previous support, setting up a potential downtrend. The rally to 91.74 is a lower high confirming the possibility. We now penetrate the previous support at the black line and a test follows. The sharp move down comes on schedule and the first rally off the sharp decline is again a safe place to short. We have now seen the same sequence three times in a row. Let's see what kind of follow through we have tomorrow.

MARKETS 5/26/09

While usually the activity the day after a three day weekend is light, today we had the highest volume first hour in the snp futures all year. This is because the futures have replaced the SPY as the place to go short and thus it is where the short covering rally can really occur and occur it did. Turning to the daily Dow you cannot see that kind of volume here. We have a low moderate volume rally off the bottom with a high end close. The average is still in a trading range and in all ways it is similar to the rally on 5/18. This was a futures short covering rally for as you can see buyers did not run out and buy stock. Having said that I must confess I do not know what it means for practical or prognostic purposes.

Because Stockcharts has a 30 minute hour for its first hour instead of its last, the hourly chart underestimates how extreme the first 60 min volume was. Here you can see it is the highest in weeks. On the futures as I mentioned it is the highest in months. That every bar except for one closes on its high tells us how strong today's market was. God knows that these markets can go a long way on short covering.

Turning to the 5 minute bar chart, it would seem that traders from even before the opening, probably since their last bbq'd hot dog could not wait to buy. That buying triggered short covering and 15 million shares in 5 minutes, all closes near the top. The area surrounded by the blue quadrilateral is interesting. Every close but 2 are near the low of the bar, yet the selling is not strong enough to push prices below the low of the first bar. This is a sign of strength. Until the high, prices rally not on demand but on a lack of selling. The sellers have been demolished following their blissful weekend being short and looking forward to the bankruptcy of GM and they are in no mood for further punishment. The short side however becomes irresistible following the shortening of the thrust to 91.56. Volume picks up breaking through the last support at the small black line. The subsequent rally up fails and we are ready for the big move down. It fails at "a" and again at "b." The market is supported.

I have posted a variety of other charts for your perusal.

MARKETS 5/20/09

As this is the 100th post, I thought I might go over how some of what we have discussed is used in real time. These are all actual trades either in s and p futures or in an analogous etf. The average closed in a spring position after a very bearish low volume day. I was flat and had no position at the opening. I had been lightly short futures and was stopped out over night having moved my stop to break even because of said spring position. A gap off of a spring is normally

very bullish but what caught my eye was 1 the very high volume midrange close. This seemed very high as of late and meant selling into the advance. The futures volume for reasons discussed previously was even more striking. The break at 2 with the long red bar wiping out the previous 2 bars gain confirmed my view that the advance was being sold and possibly demand was exhausted as we fell so easily. The next bar was heavily sold with higher volume and a low range close. 10 minutes later another rally attempt which musters no volume and confirms that demand is exhausted. The break beneath support at 92.5 and more important the last support before the high 92.4 confirms the trend is down. We now wait for a rally to a lower high to sell. That comes at 3. When the average closed over the range of the large down bar(above the dashed line) I believed it was too weak to close above that range twice in a row, as we previously discussed and sold, willing to exit the position if we closed above the dashed blue line twice. I expected a sharp down move as we have discussed and we got it to 4. 5 was a hinge and the break at 2:00 showed how eager the selling could be. 6 was an upthrust which precipitated a fall which nicked the dashed blue line below the last support. 7 is the test of the upthrust and an upthrust itself. I sold again with a mental or actual stop above the green line. This triggers the sharp decline to 8. We will see in future blogs whether one can safely sell the first rally, as here to 91.03, after these sharp declines. All stops were moved to break even.

MARKETS 5/19/09

For a change please begin with the daily SPY. The volume today was the lowest this year including holiday related days. The range narrowed and the close was low end. The volume on the rally yesterday was low as well showing a lack of significant demand and is the opposite so to speak of April 20. Diminishing volume on the rally, narrowing range, a low end close, and an inability to reach the old high at 93.22 marks today as a secondary test from Mr. Wyckoff's point of view. We should note that volume at 206 million is 40% of the volume near the lows March 6 and 30% of the volume at the end of November. This represents an enormous drop in demand and makes the third day in a row where the absence of demand is notable. The market requires a heavy volume wide price range break to confirm the accuracy of our deductions.

Briefly the daily Dow has similarly narrow range but the volume today was the same as yesterday. Supply overcame the minimal demand as the average kissed the blue trend line goodbye.

Turning to the 5 minute bar chart, the low volume yesterday and today is striking. Yesterday the 10:45 bar was the only one to exceed 5 million shares except around the opening and close. The market moved up in a stair step pattern. Most steps had a spring which triggered buying by hopeful bulls, but the demand never amounts to much. Nevertheless the market closed on its highs. Today the market advanced strongly with increasing volume and high end closes to 91.89. On the futures market, the volume at red 1 is much higher. Perhaps again there are problems shorting the SPY. At 91.89 begins a 10 point trading range that last until the final upthrust at 91.97. PLEASE ON YOUR OWN FIND THE PATTERN AFTER THE UPTHRUST THAT WE HAVE DISCUSSED QUITE A FEW TIMES AROUND SPRINGS.

MARKETS 5/17/09

Good Sunday evening. The daily Dow had an outside reversal day, moving above Thursday's high and closing below its low. The volume however was the second lowest in more than a month and given that it was options expiration day that is especially significant. Whether there was a fall in supply or in or in demand we will try to determine in the remainder of this post. However I can tell you that I have seen action like this before and on more than one occasion it has indicated a significant drop in demand and has been the harbinger of a severe decline. Unfortunately that has not been 100%.

Turning to the hourly SPY for our count. There is account of 7 across the 90 line Which gives us a downside range of 83-86. Continue bearish behavior back in that range could enlarge the count across the 86 line for example which could easily count to new lows.

Focusing on Friday on the 5 min pnf, we made a small new low for the move and while it might be shortening of the thrust what seems remarkable is the lack of a meaningful rally even though we are closing in on support. There is an absence of demand on the pnf where one would reasonably expect it.

Finally the intraday will come as close to giving us certainty on our tentative deductions about the lack of demand as we can get. The average upthrusts and puts in a very short term top on the 2nd bar of the day. On lower volume the average makes a spring at 93.09 and rallies sharply with almost all high end closes and no reactions. The volume however does not expand materially. Even on penetrating the green line the volume does not expand as much as one would expect and whatever demand there is is exhausted and overwhelmed by supply on the narrower equivolume reversal bar at 90.000. Some large players had their orders in at a nice even number. The average falls easily 12 points for the next 80 minutes until noon. For the rest of the day each rally ends lower than the previous rally, each is on tiny volume and each is sold as in "sell rallies." The last 35 minutes is particularly telling in this regard as each spike up is immediately sold in a reversal bar. The last bar in spite of its large volume cannot even make it to the green line. Clearly there is persistent resistance to any up ward move. So that is our picture, demand is lacking and there is resistance to an upward move. The line of least resistance is lower.

I have again added some pnf charts for your perusal. Remember stocks have tended to move in the opposite direction of the dollar index. Energy and agriculture are at old resistance areas where turnarounds or breakouts occur.

mARKETS 5/14/09

Last week the daily Dow peaked on the high volume pumping action I commented on. Tuesday looked like a spring but in reality it was a rally that failed, confirming the exhaustion of demand at the top. Wednesday was a low volume high range decline which broke both trendlines. While expanding volume would have been nice, it is not absolutely necessary. The ease of down ward movement is much appreciated. Today the average rallied on very low volume, tested the purple trendline and closed in the middle. This was a surprisingly weak rally. The rally was stopped not just by the trendline but also by the zone of distribution last week.

Turning to the hourly bar chart, around 88.50 you can clearly see the pumping action that put in the low. The rally to the red line is called a backup to the ice.(It is a long story.) The last bar with its close below the low of the prior bar is weak. The down trend is clearly framed by the two trendlines, so far. Support is around 87.5 and below 82.5 is a whole new ball game.

Unfortunately I cannot draw any lines on the 5 minute bar chart. After an opening rally, the SPY makes a new low and a spring at 88.5 from whence it rallies sharply, more quickly than it fell and makes a new high for the day giving us a sign of strength. This of course is tested back in the trading range and at 10:45 there is another spring. This begins the 10 point rally to 12:30. Declining volume accompanies this rally. Volume declines even more on the reaction to 1:25. The rally that follows also is weak and ends at 90.12 with a narrow range high volume bar where supply finally puts the struggling rally out of its misery. Over the next hour trace out the significant bars as we have discussed them so often.

All in all supply does not follow up its advantage all that well either. As a result I cannot predict tomorrow's opening. However unless something changes no matter where we open tomorrow the game is going to be where to get short.

I have included quite a few commodity charts. Please do counts on the pnf charts and you can see that we have accomplished many objectives. On the bar charts all can go either way and they will probably follow stocks.

The Dow went below the last two days range and closed well into that range very near the high of the day on slightly increased volume. This is all bullish behavior and we need either upside volume or ease of movement to confirm it because volume is nowhere near the standard of last week. This dipping below the recent trading range and closing inside of it near the high of the day was seen in many of the agricultural commodities today as well. It shows that nothing was for sale beneath the small trading range.

The hourly shows a clearly defined spring at 89.85 and the heavy volume it triggered. Selling came in on the close and a test will be necessary. I believe it will be successful and it might even happen in the overnight market.

Finally in this brief note, I want to look at the action in the spring area which is below 90.28 specifically. First note the shortening of the thrust as shown by the short orange lines. Point "o" is the last point before the final decline. As such it is the last point where supply overpowers demand on a rally before a decline. 1 is a reversal bar which makes us watch carefully, especially as the selling pressure has been so light and we are in a spring position.

The bar at 1:05 is a decline that failed to generate any selling and the next bar is absorption at the bottom of the trading range of the 90 orange line. Absorption relatively complete we move on two high end close bars to 2. That 2 is higher than "o" shows that the buying pressure is now greater than the selling pressure. This is very important especially as it is easy to follow in real time. The disappearance of supply to 3 confirms that selling has evaporated. The wide range up bar, 4, confirms the bullishness of the situation.

Many times is this blog we have discussed the disappearance of supply or demand and the ramifications of that fact. The lack of supply from 2-3 is enough to end the downward chapter that began last week and signal the beginning of a new upward move.

MARKETS 5/11/09

The 5 minute point and figure shows the complication of today. Yesterday I pointed out how the flattening of the lines pointed to supply, today the flattening points to supportive buying. But buying that is not willing to follow prices higher. As such we can see lower prices but I expect that buying to persist even if at lower prices.
The 60 minute pnf chart I believe, as I mentioned yesterday is on the hinge but a rise is most likely. We have not even broken a trendline, if I could draw them. Reacting 2 "0's" is not that unusual and does not point to exceptionally heavy sustained selling. As such I do not see any reason on this chart to assume the trend has changed.

The volume on the daily Dow fell almost in half as it remains in its 4 day trading range closing on its low. The uptrend line is still intact. Today either the supply dried up(most likely) or the demand. If the former we can look forward to some kind of spring. If the latter we will need a wide range heavy volume break in prices.
Prices fell after the opening with heavy volume, wide ranges and low end closes until the volume, supply diminished. Volume and range diminished on the rally beginning at 10:50 and it took 8 bars to not quite regain the loss in the days first four bars. To add insult to injury the rally is heavily sold form 10:35 on . The average spikes on markedly lower volume to 92.11 showing demand is exhausted and prices fall off sharply. Selling does not pursue prices lower and a weak rally characterized by sporadic volume begins at 1:00. By 91.40 the very weak volume warns that we are out of demand. Prices fall off sharply and are then supported above the 91.55 red line. It is this support which was so prominent in the flattening of the pnf chart. We again upthrust and fall slightly below our red support line, telling us the selling pressure is greater than the support. From this point to the end of the day rallies are heavily sold. Note the volume spikes on rallies and how they quickly give way.

I am again adding commodity charts just because there is so much deflationary talk in the media.