Sunday Evening 29 August 2010

The market is always the final arbiter, as has been said here before.  Watching developing activity will always provide important clues on which way to go.  One may form an opinion about what to expect, in
terms of market direction and then act accordingly.  It is vital that one remains flexible as new market
information becomes available.  For this reason, it is better to be a follower and not an ego-driven leader, always trying to be ahead of where one "thinks" the market may go.

In fact, we addressed this a month ago, [See S & P - A Step Behind Is Better, click on http://bit.ly/aRjJ9T,
fourth paragraph after chart].  There is no need to try and be ahead of where one believes the market is
going when by following the market "tells," instead.  It is less risky to follow than to lead.  Control of
the risk factor is essential to consistent, successful trading.  Does that mean that trades will be missed?
Absolutely!  So what?!  Rest assured, potentially profitable trades are always coming along.

This has not been an easy market to be in since the "fat finger" collapse,  back in May.  The reason for
cautioning flexibility is due to the two high volume, high end closes last week, and Friday's was the most
important for it erased two strong down bars when it looked like sellers were in total control.  We have
been bearish, looking for a rally to sell.  After Friday, the market could embark on a more protracted rally
than we anticipated.

The reason for the caution in a bearish posture is the newly developed market activity, [Friday], which
was not known, previously.  The May/June lows held this last retest of that previous support, as can be
seen from the horizontal support line drawn.  That support should be familiar because we drew a similar
line on the 21st, [See chart, S & P - Go With First Impressions, click on http://bit.ly/cJfBxD].  We also said
there was a broader trading range, [see the 9th paragraph], and that trading range is still a viable part
of developing market activity that needs to be maintained as a consideration.

Friday's price rallied close to where we expected to see a retest at the 1066 area, [See S & P - A Likely Rally, click on http://bit.ly/9BZIOp], 3rd paragraph.  We also said the market was in a broader trading range, 4th paragraph, except that we characterized a likely rally as one within a down trend.  Right now,
it is more reasonable to say a Trading Range, instead.  In a trading range, anything can happen, and the
level of knowledge is at its least.  In a trend, market momentum is defined.  Not so in a trading range, so
more caution is required.

Our anticipated strategy of looking for a rally to sell may have to change.  That will become apparent
as new market information comes in, starting on Monday, and we can gauge the quality of HOW price
continues to rally, IF it does.  That is the importance of remaining flexible.  It could turn out that instead
of selling, we may end up looking to be buyers, if the hourly trend changes to the upside, at the first
clue of a new buying swing confirmed to the upside.

What we have to watch for now is the quality, or lack of it, on any retest of Friday's last swing low in
the larger trading range.  The clues to look for will be smaller ranges and decreased volume on any
attempt to correct downside.  For now, the buyers have wrested control from sellers by virtue of their
ability to rally strongly, the strongest up bar since late June.

We are not trying to "predict" where the market will go.  All we are saying is, we know what signs to
look for as price and volume develop going into the new week, and we will follow accordingly.  What we
can say now, which we would not have said prior to Friday, it that price could even rally back above 1130!
It may never get there, but the point is the potential for it has increased as a possibility.

Once we see how the market responds to developing support or resistance points, a position can be
taken with a better defined risk factor.  There is always the possibility that the market could fizzle, yet
again, and that would mean much more weakness than we have seen.

 Waiting.