Sunday 25 July 2010

 The most important piece of information one can have is knowledge of the trend.  While that statement
can be viewed as Technical Analysis 101, it is equally true for the most advanced of trading, and that is
because the trend is a principle that applies all the time in all time frames.  Forgetting this seemingly
simple bit of information can be costly.

 In the last article, mention was made that a trading range is a nemesis for trend trading. [See S & P - A Trading Range - Nemesis For Trend Trading, click on http://bit.ly/cbOEXN, and note the second to last
paragraph, for the market is still at this phase...no ending action to the current rally.

 The trend is important in the time frame being traded, so a quick review of the trend over the various
time frames.  Monthly: Down. Price failed on a small range monthly bar, indicative of an inability of buyers
to extend the range higher.  Price failed just above the half-way retracement point and at the July 2008
low.  Lower highs and lower lows = down trend.

 The weekly chart is a more detailed version of the monthly, and it shows how price has broken a previous
low for the first time since the March 2009 rally began.  The biggest clue that the March 2009 rally is one
within a down trend is the length of time it has taken to retrace to the 50% area, and the bar ranges are
so much smaller than the previous down bars, including the recent failure from April.  The bars have gotten
decidedly larger on this break.  Trend down.

 Adding the above two charts was an afterthought to the next two, so the charts are from a different
vendor, which does not really matter, other than as an explanation for the difference.  Here is where the
current analysis begins.  The trend is clearly down here, after a series of lower highs and lower lows.

 There is a supply trend line connecting the April - June highs that has been broken.  As an aside, these
kind of trend lines are not that significant for us, although many analysts put a lot of emphasis on them,
often to their detriment.  There are more important price levels to be gleaned.  Even though the trend
line has been broken, there is still some resistance at 1100, and again at 1130, the mid-June failed
rally.  Both are more important indicators of resistance than the identified supply trend line.

 The devil must have been a technical analyst, too, for the devil is in the details of the charts.  The details
are important, for they tell the market's "story."  For now, that story is muddled, and that is a simple fact.
Not everything in the market is as clear as many would like, but exercising patience and waiting for that
clarity will pay off.  Eventually, market activity will become clearer.
 
 Price is in a trading range, defined by the April high and July low, and there is another trading range
within, defined by the 1100 high and the last low near 1050.  The next chart will show yet another smaller
trading range.  What can be said about these trading ranges is to leave well enough alone until they
come to a resolve, and they will.  THAT is when an opportunity can present itself with a higher level of
knowledge than is available right now.  In a trading range, the level of knowledge is low.

 The half-way point on the monthly and weekly charts, from the April high to July low is 1109.  That is
considered resistance.  From the daily chart, with the current rally evolving, there does not appear to be
any ending action.  Until there is, we can expect the rally to continue.  There are three possibilities to
expect from here: up, down, or more sideways.  What else can any market do?

 Continuation up is the most likely scenario, but the question is, how much higher?  The market has to
deal with the immediate resistance at 1100, and Friday's close puts price right there.  This daily chart was
printed earlier in the day, so it does not show that price closed at 1100.  Next  resistance is the 1109 level,
just mentioned.

 What will be important from Monday is to watch HOW the rally continues, and HOW it approaches the
1109 half-way mark, IF it does.  We do not know that, yet.  If the intra day rallies are wide ranges to
the up side with increased volume, 1109 may not hold, and 1130 becomes the next target.  Of course,
there can be a brief rally above 1109 that fails and closes lower, and that becomes another story.

 Yet more detail from a 180 minute chart, or three hours.  It cuts out a lot of "noise."   Here you can see
the trading range within the other trading ranges, defined  by the 1100 high and the 1080 area.  Oops.
This chart does not show the current trading range detail.  Let us add one more, the 60 minute.  The
current trend on this 180m chart is either a trading range, or down, so make it questionable.

 Here you can see the smaller trading range, within all the other trading ranges, between 1095 and 1085.
For now, it has resolved itself by closing higher, but we are comparing a relatively much smaller time
frame when compared to the larger, more controlling monthly, weekly, and daily time frames.  While the
60 minute time frame trend is up, it has too much opposition to rely on it.  Use it more as a timing tool.

 The point to be made is that the charts are not showing clarity, so wait, or the devil may get you.