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We Have A Situation Here April 14, 2012

Posted by Tom in Thoughts.

This will be a short but “heavy” posting as today is a busy day for me.  But this is a potentially important time in the market place.  We have . . . “A Situation” here.

Market at a turning point?  That could very well be.  Lets take a look:

chart courtesy of MetaStock / Equis; used with permission

First, a brief review (you can blow up this chart by clicking on it).  The dotted blue lines show the steady upward channel that this market has been in.  No real surprise that it has broken the lower trend line, since the price momentum (top chart) has not been making higher High’s with the corresponding price action directly below it.

The new analysis: I’m calling the vertical black dotted line (labeled BC) as a potential Buying Climax.  The reason is the very high volume and the extremely narrow bar (not much difference between the high & low price) on that day.  This indications distribution of shares to me (a lot of volume / cause and very little price movement / effect).  The red line is the first reaction low off of the BC; we’ll call that a support level.

This past week we saw that support level broken on heavy volume; sellers are coming into the market with few buyers, price falls.  The last 3 days of the week are relatively quite; note the lower volume circled in red.  What does this mean?  Right now, a “wait and see” status for this market.  With earnings coming up over the next few weeks the stage is set for a rally back above the red support line, or a move down.  Let’s face it, the market is venerable in here.

I am very cautious and have scaled back exposure accordingly.  The “short side” is on my radar screen both from a hedging / protection side and also as a potential position side if things get worse.  So be extra careful out there, because we have a situation.  And right now, no one really knows which way it will be resolved.

Have a Good Week.          ……….  Tom  ………..


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