Monday Evening  19 July 2010

 One of the primary ways to identify a trend is by observing a series of lower highs and lower lows, in a down trend. That is very evident in the daily chart.  Price stalled at the 1100 level and produced a cluster of closes. This can mean one of two things. It can be a sign of reversal, or it can be a temporary stopping point leading to continuation of the previous move. Friday brought the answer as developing market activity confirmed the overall weakness and turned price back down in harmony with the trend.

Monday's activity was a smaller range, contained bar. One could easily say that sellers were unable to extend the range lower, but the day really belonged to the buyers. The first hour was a wide range bar down with a very weak close. The close, however, was still above the lows from Friday. It was apparent that there was no downside follow-through, as was expected after Friday's weak close, and a poor weekly close, as well, so it was a matter of watching the character of any potential rally.

A new low formed shortly after the first hour, but from then on, price worked itself higher for the day. When Friday's and Monday's bars are viewed from that perspective, rather than say sellers were unable to extend price lower, sellers were simply absent, and it was the buyers who could not make a more impressive showing. After making new highs late in the trading day, by the close, price had given back some of the gains and gave credence to this observation.

This also demonstrates how reading market activity is subjective, at times, while at other times, it can be quite clear. This is why it is so important to wait for confirmation, whether it be for a market turn or for continuation. The way things stand, Monday was a weak rally attempt after a strong selling day, and weak rallies lead to lower prices.

We have to go with what is known. Events may change tomorrow, or the day after, but until there is some obvious ending action, with the trend down, being on the short side of the market has been dictated by price and volume activity that says lower prices are likely, not guaranteed, but likely.

Staying short until the market says otherwise, for anything can happen.