Special Risk Capital Management LLC

Air Gap Higher, but Will It Stand ? November 1, 2014

Looking at the chart below we see wonderful things.  Right?  Well Yes & No.  Here’s why:  True we have recovered from that sudden drop in early October and we’ve gone well beyond the past high price, but look at the last bar (circled in red).  A narrow bar, gapping up, on above average volume.  Wyckoff would be concerned that buying and selling were about equal (narrow bar) and there was heavy volume (little ease of movement and significant effort).  Not very bullish, more neutral at best.

This is the type of bar that happens on news, and it did.  The Bank of Japan announced its version of Quantitative Easing.  All of that additional money will go somewhere and the “bet” is it will find its way to the strongest economy (currently) in the world; the US of A.

So what next?  Well, we’ll have to wait for next week and see IF this price level can hold.  If it can that’s terrific because the majority believes that buyers are coming into this market.  If not, then “dance close to the door”.  Narrow bars at new highs on high volume: be very careful.  I’ll be watching for signs of “no demand”, that is price moving higher on very low volume.

That’s it for now as I’ve spent a lot of time on my monthly newsletter (which you can find posted here under that tab).  There you’ll find more charts, graphs and sector strength tables.  They are showing uncommonly strong buying, but that amount of strength is of concern in this structure.  I’d prefer to see a slow & steady climb higher, but we have to trade the market that we are given.

Have a good week.            …………..  Tom  …………….

chart by MetaStock; used with permission