S & P - Call For Its Demise Have ALL Missed

Sunday 7 April 2013

Salivating Bears have been calling for a market top for over 4 years, now, and none have
been right. The sentiment is understood but misplaced. This goes to show how markets
are not predictable, but people are. So many want to exercise the FILO inventory premise:
First In Last Out. It is so difficult to check egos at the door for there is a huge difference in
being right and being profitable.

Those who choose to be right often find themselves on the loosing end. Those who choose
to be profitable always have a game plan. Game plans rarely pick tops or bottoms, the
most unprofitable areas for trading. The best source for market information comes from
the market itself, and from what we can see, there has been no indication that a top has
formed. It is possible the market is getting there, but getting there and being there are not
the same. Always stick to a proven game plan.

The message of the market is best viewed from the charts, and we are using the E-Mini.

An associate of ours has observed that market rallies tend to last 15-20 weeks, and the
current rally is in week 20. A correction, of some sort, is now due, this week, next week,
it cannot be known until it happens, but the Time factor is ever-present.

Last week was an OKR, [Outside Key Reversal], defined by a higher high and lower low
from the preceding week, and in this one, a lower close, [the close can higher, lower or
unchanged]. The word “Reversal” provides a clue as to near term expectations. Not
ours, necessarily, but as in the acronym, OKR.

The one factor outweighing the rest is the trend, and the trend for stocks is up. Trends
tend to persist, and it takes time to turn one around. Time equates to patience, and it is
patience that is the undoing of a great many traders. There have been so many calling for
a top, as we have observed from comments and expectations over the last 4 years.

In an up trend, demand is already a proven factor. It is supply, or sellers who bear the
burden of proof for making a change, and that has not yet happened. The groundwork
already exists for a correction, but it is impossible to know, in advance, if it will be a
normal correction, and lately, they have been 9-10 days in duration, or if it will signal
the potential of a topping formation.

Identifying the trend as up does not mean one should not be cautious or unprepared for
a market turn, but the caution would be in the form of taking profits and/or using close
stops. It does not mean going short. Even the 2008 market top took a few months to
develop.

Upside momentum has lost a few steps in the current rally. In the rally leading to swing
high 2, note how the bars were steadily higher. In the current rally, the bars have been
higher, but mostly overlapping. When bars overlap, it indicates a greater struggle between
buyers and sellers, but so far, buyers have prevailed.

The bulk of the rally to swing high 3 began when price broke above swing high 2, at the
beginning of March. The high of 2 has been support, seen at arrow 1. Friday’s decline is
still above that price, 1529 area, and the entire box area is above 2, which is a bullish sign.
It may not hold, but until that event occurs, we can only judge the market by the facts as
they presently exist.

Friday’s sell-off closed above the half-way point of the range, and that tells us buyers are
still actively present, even if the buyers are only the Fed. If sellers were in control, the
close would have been lower. Based on the trend, we could be looking at an opportunity
to buy on Monday.

The 1529.50 low of 15 March is likely to offer support on a future retest, horizontal line
extending to the right. This makes Friday’s low very interesting. One measure Connie
Brown, Aerodynamic Investments, uses is equality between swings. The decline of “A”
was 24 points, as was the decline of “B.” Based on this, at least a reaction can be expected,
at a minimum. [Never forgetting "Anything Can Happen" in markets, it can also fail.]

The highest volume occurred at the low, and that begs the question, who do you think
creates volume? The short answer is what we like to call “smart money.” The public tends
to follow, not lead. The Friday low is above the 15 March support, telling us if sellers were
in charge, why couldn’t they press the market lower and take advantage of their selling
momentum? Maybe because sellers do not have the momentum.

The reaction off the high volume low was immediate and to the upside. If we see a light
volume pull-back on Monday, with smaller intra day ranges, it could offer a low-risk buy.
As was stated in the opening second paragraph, having a game plan is essential to being
profitable. It is not a guarantee for profit on every trade, but the consistency in application
is a winning combination.

Developing market activity is always the most reliable source for information and the best
guide.