the week ahead (04/22/12)

“In the short run, the market is a voting machine. In the long run, it’s a weighing machine” – Warren Buffett.


I felt the market is balancing between 2 high volume areas – waiting on new information. Perhaps the widening Spanish bond yields may force another “sell in may and go away”. As the benefits of LTRO wear off then a repeat of 2011 may be on the way.

1363/65 – 1388/91 is the current range – value area is between 1367 and 1384 – this may all change.

The market looks to be clinging onto 1377.25 HVN area.

Anything around 1386/88 is being sold.

1363/65 is HVN/MCVPOC and key support.

To summarise what I am saying below and to tie it with previous analysis.

Below 1363/65 = 1355, then 1340.25/1345.25, 1333.5/1336.5

Above 1388/91 = 2012 highs in play


Chart 1. Longer term with key visual areas of interest and some fib retrace and extensions with HVN’s.

Observations:

Selling is aggressive at 1386.25, the 50 back retrace of of the downmove from double top

Fib extension downward to 127% = 1334.25/1337 (around the 50 back of the 2012 upmove).

Note total delta – market is selling more aggressively above a higher low. According to Wyckoffian principles this does not look like weak retest on lower volume on the downside (a weak re-test would signal more upside). Even though it has jumped from 1352 it has sold more aggressively again afterwards and delta is -50k at a higher price.

Result of effort: strong selling got the price down but weak buying got it up just as quickly. This could just as easily continue to squeeze to the upside.

Note, on the upside there are 2 closes in the 1391 area = key Medium term Resistance. Marked in red.


Chart 2.

Key trend line support which is the bottom of a rising wedge (more below).

1363/65 has been tested twice and held. The next low on the trend line is near the 2011 high at 1351.75 – key area for bulls to defend if they want to continue to keep 2012 green on the yearly chart (updated): 2011 close was 1274.

HVN areas for support (as mentioned in 1340.25):

1340.25 with potential balance area at NVPOC at 1345.25
and
1333.5 with potential balance at NVPOC at 1336.5

A measured move would be to 150% extension at 1320.


Chart 3.

Note volume delta on down days vs up days. There are more heavy down days than up days however the selling is getting smaller.


Chart 4.

Looks like a rising wedge – higher highs and lows (check), uptrend reversal pattern (possible), uptrend legs on less upside volume (check) – chart is 100k volume 24 hour session with total volume displayed in volume panel

More on rising wedge:

The rising wedge pattern is characterized by a chart pattern which forms when the market makes higher highs and higher lows with a contracting range. When this pattern is found in an uptrend, it is considered a reversal pattern, as the contraction of the range indicates that the uptrend is losing strength. When this pattern is found in a downtrend, it is considered a bearish pattern, as the market range becomes narrower into the correction, indicating that the correction is losing strength, and that the resumption of the downtrend is in the making.
In a rising wedge, both boundary lines slant up from left to right. Although both lines point in the same direction, the lower line rises at a steeper angle then the upper one. Prices usually decline after breaking through the lower boundary line. As far as volumes are concerned, they keep on declining with each new price advance or wave up, indicating that the demand is weakening at the higher price level. A rising wedge is more reliable when found in a bearish market. In a bullish trend what seems to be a Rising Wedge may actually be a Flag or a Pennant (stepbrother of a wedge) requiring about 4 weeks to complete.

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