Sunday 13 January 2013
We have a price target for the S&P e-Mini: the 1482-1488 area. That area is
derived from Point and Figure, [P&F] used to measure market “energy,” or the
potential target that price can attain in a directional move. The market is already in
an area where it can fail. The one caveat to any analysis pertaining to the stock market
is an inability to assess market interference, [manipulation] by the central bank/Wall
Street firm[s], doing everything possible to defy market gravity, and succeeding.
There were clear signs of a market sell-off, that began in earnest, starting in 2008.
What was not known then was the extent to which the market would collapse. This
is exactly why the Fed/Wall St has been intervening for the past year or two. They
want to prevent the inevitable, inevitably making it much worse when reality is
allowed to function without the artificial stimulus. Never underestimate central
planners with access to unlimited fiat to boost prices.
The monthly closings in November and December, 2007, and the January high of
2008 are circled on the chart to see why the 1483+ area is potential resistance. When
the P&F target area of 1482-88 is added for consideration, there is a price target
synergy that merits heeding.
The resistance we mention remains potential because it must first be tested, and price
must then fail, in order for a change in trend to be confirmed, and that change can be
from up to just sideways. One does not act immediately upon this information by exiting
long positions or establishing short positions, especially the latter. Price could stall at,
and then proceed higher, or it could simply sail through that level and enter the 1500+
area. There must always be a reason for taking any action.
We rely more on horizontal support/resistance lines than trend lines because the
horizontal lines are drawn from previous swing highs/lows where we know price failed
at a specific area. We do have an upslanting converging triangle to show another form
of potential resistance, and it happens to coincide with the horizontal and P&F numbers,
giving a third independent tool for analyzing the market.
On the monthly chart, there is price synergy, but it ends on this chart. We did cover the
importance of market synergy in our recent analysis of AAPL, when it failed at 700.
For a comparison, see http://bit.ly/WB2vUk.
Contract changes account for the price differentiation in highs over various time frames.
Current weekly price is under the monthly resistance level. The September high is the
resistance area where price closed on Friday. This leaves more leeway for how high
price can go on the weekly chart, and the room indicated by the channel shows just how
much price can rally over 1500 before meeting channel resistance.
Last week was important. Barring an artificial price boosting, the weekly range was a
poor showing for a bullish argument. In an uptrend, whenever you see a small range,
especially at a potential resistance level, it says that demand is weak, unable to extend
the range higher. When you compare last week’s small range to the previous week’s
very wide range and strong close [seemingly], you have to ask, what happened to the
buyers? Where did they go?
[We allude to a strong close because sometimes it can be exhaustion, and that could
account for Friday's poor showing.]
Fortunately for buyers, they are a proven factor in an uptrend, and the onus is on the
sellers to change market direction. However, a lack of demand, when at what appears
to be an area of resistance, can embolden sellers and they become more active. We have
not seen that yet, but it is important to be aware of the possibility.
There is no evidence of a market turnaround, at this point, yet there are pieces of
evidence that point to potential trouble, spelled with a small “t,” for now.
The daily chart hovered around the September high, seemingly offering resistance, but
there was little reason to believe price would stop there. You can see the gap in price
for the first trading day in January. When you view that bar, as is, and observe the next
several trading days moving sideways, prior to the last two bars that rallied above 1460,
price seems to be wavering. However, the story is different when the “true range” comes
The true range includes the gap area from the previous close. Instead of viewing the range
of 2 January as 1438 to 1458, the gap close from the previous day, 1420, makes the true
range 1420 to 1458. Then, when you view the sideways activity, relative to the true range
bar, there was very little “give back,” or price correction, actually making the sideways
move bullish. This was confirmed on Thursday, when price rallied to close at 1467.25. Then came Friday.
What happened to the buyers? Here was an opportunity to rout shorts and new sellers.
It did not happen. Instead, price limped to close unchanged. Like we said about the
weekly analysis, the onus is on sellers to make a statement of change. Buyers are a
proven factor. Unless, or until sellers make such an altering statement, price should
continue to work higher.
What everyone needs to be alert to is some kind of price weakness that does gain more
recognition that demand is spent and supply is about to take over. That would come
in the form of price failing at resistance with wide range bars to the downside on sharply
increased volume, followed by weak, small range rally attempts, on less volume, that fails
to recover lost ground. If you do not see it, do not believe that this rally is over.
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