My last blog was 4/26 when I called the top. With the enormous support that has entered the market at the 105 level should we re-evaluate that position? First let me note that in many recent tops, the volume has not been on the run-up to the top but on the way down after the top. The 2000 Nasdaq top being a perfect example. So far the SPY fits that pattern. Before I get to may main point I wanted to illustrate how sensitive the forces that run the market are to future supply and demand. Between 11/16 and 2/1 this market made a perfectly good top with a count of 23 points on the 109 line. It precipitated a decline to 2/9. The decline was then aborted and an extremely sharp upmove began. The reason and the sole reason for that move is that the powers that control the market saw the chance to sell more shares to the incoming IRA buyers at a higher price. And the topping action began at 4/15. When that IRA buying was finished the market promptly returned to the low of 2/9. Obviously this is extremely bearish as it clearly shows the hollowness of the demand. My point however is the unbelievable sensitivity these market makers have to future supply and demand. Our aim in reading charts is to determine what they see or anticipate.
So let's return to the pnf chart. As pointed out we had wonderful distribution along the 109 line which was interrupted and extended by the rally and further distribution along the 120 line or thereabouts. When that well anticipated demand was exhausted the market cratered to 105. Distribution again across the 116 line.(you do the count. To which you may want to add the follow on distribution at 114.) The market then rapidly falls right back to 105. A small accumulation of 5 at 106 foretells the rise to 111 and that rally has much resistance. And then 6 across 110 tells that we are going back to the bottom of the trading range. This is done rapidly and easily.
That the market since touching 105 May26 or so has not been able to rally into the top half of the trading range 105-117 tells us that supply is in control and the 7 month distribution is nearing completion. Because of the squiggles do not ignore the big picture.
