MARKETS 10/29/2009

Today's volume stands in sharp contrast to the very heavy volume of the decline preceding it. If this were a bottom it would be the third V bottom in a row after which there was a light volume rally.(But as long as we are looking at history, the second to last trading day of each month was some kind of high and the first day of each month was a sharp sell off.) The light volume might well mean that we are once again going up on the absence of selling plus a little short covering.

Here is an assignment. Go through today's action and find each possible instance of possible topping action, upthrusts, buying climaxes, shortening of the thrust etc; How can you tell they will fail well before a new high is made? Which of these is most likely correct? Why?

Find the bars which are clearly short covering bars. Notice the closes in these bars. What does that tell you about the market?

Hints: For the first paragraph think ease of movement.

Second paragraph--So why are the closes in the middle?

You cannot have large volume unless large interests are playing. Given the low volume on the daily and your observations above what is the generic large operator doing?

MARKETS 10/27/2009B

History does not repeat but it sure does rhyme or so said Mark Twain. So today was the third time since the beginning of September that we had three lower closes and the third day had a narrow range and high volume implying demand is overcoming supply. Both of the two previous breaks with their narrow range days were followed by lower volume straight up rallies notable for the relative absence of supply. Is this going to happen again or is the third time the charm? Unlike the two previous instances, today the close is very near the low. But that seems like a small nuance upon which to wager a lot of money. Again we must look to the intraday for aid.
On first glance at today's action two things stand out. First the selling climax and second that prices in the second half of the day are again drawn back to the lows. Let us remember as best we can what a selling climax is. It is when under panicky conditions, with an unusually wide range shares move from weak hands to strong hands in large quantities. As the weak hands rush for the exit all at once, after the selling is finished there is a temporarily lessened supply. The supply has already been liquidated. This might result in an automatic rally. If on or after this rally shares are again thrown back onto the market then the secondary test if supply is great enough will fail. If the supply is lodged more or less permanently in strong hands so that supply is temporarily or permanently diminished then further rally should occur. That we have sunk back to the lows twice today sort of in general would indicate that despite the impressive 10:oo selling climax there is still plenty of selling going on.

Now lets do the details. After churning the first half hour prices fell rapidly below yesterday's low and hit massive numbers of stops. With wide range and huge volume the 10:00 bar closed well off its lows indicating, good buying in the panicky, fast market. We rally with ease of movement, but unfortunately at yesterday's resistance line we have a buying climax on making a higher high. Over the next two bars prices fell as easily as they advanced and at 11:15 in a spring they made a lower low. A spring is confirmed by ease of movement afterwards and the next bar, a reversal bar is anything but that. There is no ease of movement in the rally to 11:50 so it becomes a test of the buying climax. This test ends with a small upthrust(11:50). The lack of the ability to rally tells us that the demand is seriously diminished. At x there is no demand and an outside bar follows. Other traders see the same thing. The little rally at the beginning of the next hour has even less volume and demand. Prices continue falling for the next hour or so, and although there is some selling, primarily the decline is due to lack of demand. So when prices bottom at 106.18, I do not expect demand to suddenly appear. In fact after a weak rally, it disappears at the x, and again an easy decline follows. The same thing happens at the final x.

To summarize, although support buying is present today, buyers were unwilling to follow prices higher. Sellers sold a rally and any evidence the buying was seriously weakened. Should we get evidence that the demand is exhausted, then this bear market can really begin is earnest.

Perhaps the close near the low of the day is more significant than we at first thought.

MARKETS 10/26/2009B

I wanted to post charts of two groups that might be downside leaders. Do the counts on the pnf. Use all the usual tools on the daily charts and a few items are labelled already.

MARKETS 10/26/2009A

Counting across 109 gives us 5 boxes. 109-5 =104 as a Wyckoff target. However Mr. Wyckoff pointed out that in this kind of formation the count can rapidly grow. So for example, we have a count of 14 across 108 including the empty spaces. 108-14=94, for another count and this count can grow rapidly in this stepwise fashion.
Ease of movement with a wide range, low close and volume all what we needed with a lower low to confirm the daily trend is down.
Supply overcame demand creating a lower low. Notice the small rallies on the break from 109.2 to 12:05(the rally to 108.75 is of course a reporting error.) Can there be any doubt about what is the direction of least resistance?

MARKETS 10/25/2009

Beginning July, the markets angle of ascent increased. In August we began the largest correction since the market turned up the prior month and since then we have shortening of the thrust, a warning sign for a change of trend.
Much of the day was spent in a trading range hovering above yesterday's low. Hugging the lows with an apparent inability to rally in certain situations can a low risk selling opportunity. I wish I could annotate this chart, so for your own edification go through this chart and find many of the phenomena we have named, for example S>D, rally that failed, springs, upthrusts, etc. They are all there.
Friday's decline was on the third highest Dow volume in 1 month or more. Either it is climactic or it is the beginning of a larger decline. Which one is the problem when analyzing the intraday chart.
Even more clearly on the NYA we made a lower low on Wednesday and a lower high on Thurday. A new low with ease of movement would confirm a downtrend.
The day opened in an upthrust position and then sold off making a lower low by violating the green line. The subsequent rally makes a lower high, moving up less than the initial down draft moved down. This marks the immediate trend as down. The volume on this move is the highest volume of the day. The rally to 2 is weak in distance, duration and volume and volume and range pick up to the down. Somehow the market finds support and rallies to 3 on much diminished volume. This marks the evaporation of demand and the market sells off with ease of movement. At 4 The SPY finds support on a narrow range and elevated volume, about .5 points above support. The rally to 108.73, retracing a small amount of the preceding loss, has less ease of movement than the down wave and erratic volume. The market sells off to 5 with ease of movement and support comes in at a and b. Why the weak rally to 108 is stopped there is easily seen on the point and figure above, a good illustration of how using both at the same time can be helpful. The market again finds support at c and d, but the rally to e with high volume, short thrusts or closes in the middle shows resistance to the upmove and continued selling, now into an advance.

To summarized the daily chart shows a possible change in the daily trend and on the intraday the direction of least resistance is down. To confirm the downtrend we need ease of movement on the next break.

MARKETS 10/21/2009

Ease of movement.
Today we had selling with the highest volume since the selling at the beginning of the month in an outside day and a close at the bottom. As we were going up primarily on the lack of selling, this change of behavior could mark a change of trend. The up down action of the past 5 days is frequently ending action and I will show a few more examples later.
An upthrust of the previous high and a back test of the trendline is followed by ease of motion down, 2 hours of attempting to rally and a wide open break with the largest hourly volume this month. In one hour all of the upward work of 5 days was reversed. The direction of least resistance is down.
The upthrust is self explanatory. on it I saw tremendous short covering. 1 marks a rally that failed. After the shorts were done covering in new high ground, the demand was exhausted as seen in this rally attempt that failed, This is the second time we ran out of demand at this level and in ordinary bull moves would be the kiss of death. We went down with ease of movement, eventually making a lower low by penetrating the green line. On the next rally is the up down pumping action that probably means intense selling(Green circle). This up down action occurs two more times before supply heretofore absent overcomes demand. This easily could be a change in trend
Who would believe it. All day long GS was the downside leader.

MARKETS 10/19/2009

Another low volume day this time with a new rally high and a close near the top on relatively low volume. Again we are rallying not so much on heavy buying but a lack of selling. Before getting too bearish, let me warn you I have seen this kind of rally go on for months in the 1990's and 2006. Now if you want to get bearish, one of our proprietary methods is calling for a top around 1107.79 in the cash S&P tomorrow or Wednesday. Please don't bet the house, let the tape reading show the way.

Just to maintain some credibility, the market tested the lows of the previous day last night as feared and the lows held. The opening had remarkably little volume and the market made a spring at 108.73. Points 1,2,3 were all volume spikes when the market went through a previous resistance point. Each of the ensuing rallies travelled less distance than the previous rally with 3 not having the momentum to go further than the initial spike. 4 barely penetrates 3 and has hardly any volume spike at all. Demand albeit slight has petered out. No selling follows.


For real estate, banking and housing, the bull market may well have ended as they are no longer following the market higher. Although not shown, anything in the oil patch is outperforming the stock market.


Junk bonds are out performing treasuries and quality long bonds. Stocks are out performing junk. Frothy?

MARKETS 10/18/2009

For whatever reasons, the NYA seems like it has the best price/volume indications. So lets briefly review. September 15,16,17 the market made a high volume top and then fell to October 2 on volume that exceeded on average the preceding rally. This is a bearish indication meaning that supply exceeded demand and that we filled up buyers on the way down. However if we compare the decline to the 10 days of rally preceding it, we had a larger rally on the decline than any reactions on the advance. We saw buyers eager to snap up shares on the dip. They were not so eager to bid for shares on the rally beginning 10/5 as the volume on another straight up rally did not come close to the volume on the decline. In fact it did not come close to the volume on the September rally. Taken together these indicate that demand is drying up and that the market rose on the lack of selling rather than new substantial buying. This constitutes weakness preceding an upthrust.

On Wednesday the market rose to a new high on the widest range and the heaviest volume of the rally so far. Thursday it failed to maintain its upward momentum. The narrow range and volume that was the same as Wednesday's means that the buyers who love new highs and rush in as well as sorrowful shorts covering were being filled up by sellers. This makes the potential upthrust or change in trend if the last buyers can be exhausted. Large sellers see this large transient demand as an opportunity to unload large blocks of shares. In fact as there was no selling on the way up, we could almost say they were waiting for this opportunity. On Friday the sellers filled buyers on the way down, again on heavy volume closing the market for the first time in days in the lower half of its range and in fact beneath Thursday's low price. If the old highs around 7090 can hold we will rally from here. If not we must examine the demand of the dip buyers and whether it can rapidly absorb the selling. Either way as David Weis once said this is a low risk opportunity, so take a chance. And of course this might actually be the rally top and the beginning of a larger down move.
Gapping down in an upthrust position is bearish. Here we also broke the trendline and then retested it. As of Friday the line of least resistance is down and we need further ease of movement on a decline to confirm it.
I believe I labelled many of the relevant points on the chart. S>D means supply overwhelming demand. SOT= shortening of the thrust. The rally of 0.6 points from the last test to the first upthrust(UT) has nice volume but it goes nowhere. The result is not proportional to the effort because there is too much selling into the rally which we cannot necessarily see but we can deduce. Notice the ease of movement on the sell off from UT and the resistance to the upward move at 2:25 and 3:15. Again there is heavy selling and ease of movement from the the last upthrust (UT2). These two upthrusts I believe constitute stopping action making Friday's action a lower top and a rally that failed. Given the stopping action I put more weight on making the minor lower low in the day's penultimate bar. This plus all the ease of movement gives further evidence that unless something changes tomorrow the down trend will be resumed.
Everything, almost, that we discussed above can be found in the point and figure chart.

It behooves readers at a point like this to look at the charts of various individual leaders, like GS, AAPL, X, JPM, GOOG as well as charts showing the Fed influence which we discussed. At some point we will study the charts under the Chinese influence which include many commodities and the US dollar, with all of its influence on the stock market.

MARKETS 10/12/2009

Mr. Wyckoff is his Studies on Tape Reading, I believe, mentions that we should follow financially related issues as a clue to what large operators were doing. So for example the St. Paul Railroad might since it was Rockefeller controlled provide a clue to what the Standard Oil crowd was doing or thinking. Let us look at the Fed and its quantitative easing the same way. The money flowed into certain favored vehicles, stocks, high grade corporate bonds, and Treasuries. This enabled treasuries to rise in spite of massive issuance for example.

Looking at the above chart notice how the volume has declined on this last rally. Today we had a small range, the lowest volume of the year with a close in the middle after making a token new high. This is bearish behavior and indicates the bulls might be running out of buying power. Heavy volume on a decline would confirm this. What I am suggesting however is that we might be seeing the end of this episode of QE.

After the volume fell off on the run up to new highs 10/25 and 10/28 bonds had the high volume wide range break mentioned above. In 4 days almost 1 month's advance was given back. While stocks made a new high corporate bonds have not recovered. This would indicate either good selling or lack of continued buying as we would see in the tapering down of QE.
Lastly observe the sell off in Treasuries themselves. Perhaps their greatest fan has slowed its buying or even discussed doing so.

If the dollar stabilizes here I believe we can safely say that we have ended one of the greatest attempts to manipulate markets in the history of this country.

MARKETS 10/08/2009B

Upthrust with climactic volume
Upthrust with climactic volume
Volume on the way up much less than volume on the way down. It took 5 bars to recover what we lost in 4, implying that the selling is stronger than the buying.
A break of the trendline with expanding range...

MARKETS 10/05/2009B

Not much strength here today.
Held against multi year highs with high volume in a tight range is wildly bullish absorption.


No demand here.

I posted these charts because it seems to me that something fundamental might be changing: Gold and stocks becoming uncoupled as well as stocks and treasuries both moving down together?

MARKETS 10/05/2009

Please compare the stair step movement on the way down to the two step forward 1 1/2 step back movement in today's advance above the red line. The line of least resistance is down as every upward step meets stiff resistance. That is really all one needs to know about today's action.
In the Dow and the SPY there is an axis line. In the Dow it is at 9650. Given the halting move described above, it is unlikely we can make it through this axis line unless the market changes it s behavior.
The market has rallied back underneath the zone of distribution at 104-105.
The trendline held and the market has rallied back a bit less than Mr. Wyckoff's 50% +or -. This is a nice place for a turn plus or minus.
I will review daily charts in another post. The market gapped up and then sold off and met support in the next bar. A sharp rally ensued at 9:45 on good volume and the volume trailed off until 10:00 with an outside key reversal on very high volume. 10 and 10:05 retraced nearly the entire gain and found support. A moderate volume rally ensued until 11:00 and at 11:05 another key reversal bar. Again around 1 PM another slight new high was sold what the market would bear, not much. Around 2:30 began a run up that looked possibly climactic and it too ended with a reversal bar at 2:55 and at 3:10 was the attempted rally that failed. The decline into the close was both heavily sold and heavily supported.