Again I apologize about blogging so infrequently. Around January 18 our two trend lines are approaching an apex. This tells us that something might happen. Hopefully it will be a sharp move one way or the other. As the volume and ranges have been larger on declining days since the 11th one would guess the break will be down. On the 20th breaking the lower(blue line) boundary of our little trading range is another indication. Most importantly, that up down movement within a narrow range is a sign of large players selling and getting short, while at the same time supporting the market. The little break of the 20th then means they could not keep it in the range. Inability to rally to the upper half of the range on the 21st emphasizes the weakness and seals the fate of the index. As the buyers in our little range above 113 or so are filled up, offerings are pressed on the market and buyers who are waiting for a dip are filled up as well. We now have ease of movement and the line of least resistance is down. On 1/27, the market finally finds some support at about the horizontal red support line and we expect a rally back around 50% of the move from the top. This buying is filled up as well, 1/28 and 1/29 with the market closing near its lows on heavy volume. That support around 108.19 is broken as well. That the normal rally did not occur tells us the sellers are in a hurry and I believe adds to the bearish tone. Because the selling is so heavy I believe we have seen all we are going to see of the normal correction, that should have taken place.
While the flattening of the point and figure shows the support around 108-110, it also shows the inability to rally. The count of 7 horizontally at 114 gives a target of 7 boxes lower 114-(7x.76) points per square or 108.68. The conservative count of 7horizontally at 109.44 gives a count of 104 should we continue down. In view of the heavy volume selling described above, we should also count across the 110 line for about 30 horizontal boxes, which yields a target near the low on the chart. We have three months of distribution, and we are going to move.
On the hourly I only want to make a few points. On the 27th at 108.33 you can see clear evidence of a temporary bottom. The first bar on the 28th(110.25) the close was near the low and the volume shrunk. There was no follow through. The market surprised me among others and ran out of buyers. The sellers did not let the market float up on lack of buying but even less selling as we saw so many times in the past, but they wasted no time in selling it down sharply to 107.91. In the ensuing rally, ignore the misprint to 109.86, the two bars which had closes in the lower half of their range had the highest volumes. Again it sold off sharply after a lower high at 109.75. In other words not only are the sellers aggressive and in a hurry, but the demand is weak. No rally from support expected as of yet.
Please notice how the rallies for the most part are more like hesitations and stay within the range of the preceding strong down bar. This in my experience is most characteristic of a move that is beginning and not one that is in the middle or ending.
