Thursday Evening 29 July 2010
The last article, we asked if you could spot what may a key observation, [see S & P - A Step Behind Is Better, click on http://bit.ly/aRjJ9T, third paragraph] The same chart is shown below, but updated.
The answer stands out just as much as the failed probe on 21 June. Note the price highs on the left
side of the probe and the one on the right side that led to a steep decline. Those highs were around the
1117 area. Tuesday's high was 1118.75. Mention was also made about the small bar and mid-range
close, indicating sellers were present and buyers could not extend the range higher.
That observation led us to anticipate another decline to ensue. We did get short the next day, near the
low, but stopped ourselves out when price gapped higher on today's opening. The short position was
re-entered again after the decline began to show ease of movement down. In the previous article, we
said to look for large range bars on increased volume as confirmation to take a position, the paragraph
before the last sentence after the second chart.
The initial position was stopped out in case the pattern did not repeat and retest 1130, instead. It was
re-entered when the large range bars down appeared to confirm the anticipation. Better to take a
small/reasonable loss and look foolish reselling lower than to not take it when price could continue higher,
creating a much larger loss, and being irresponsible. Lack of discipline can lead to unnecessarily larger
losses.
Another indicator for a likely turn in trend direction was the fact that the decline after 21 June took 11
days to reach the swing low, but 15 days to recover the lost gains. Also, one cannot ignore the fact that
volume was at its lowest level in months, at the end of the rally.
If ever there were a great example of waiting for clarity and staying one step behind the market for
confirmation before acting, this certainly fits the situation.
Target? 1060 - 1050 area, initially. Of course, that is subject to change if future developing market
activity shows that our reasoning and expectations need to be changed. Going with the flow.
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