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.
