Wednesday, December 09, 2009

Update

Here is an hourly bar chart of day session e-mini trading over the past month. Most of the trading has occurred in the two ranges outlined by the blue ovals. This is the most extended period of narrow, sideways trading we have seen during the rally from the March low at 666.

What does it mean? The natural interpretation is that bullish interest is weakening and bearish interest is strengthening, a process that is commonly called distribution. But I have been in this game long enough to be suspicious when I get lots of chances to sell near "the top". Even if this is distribution, I think it is more likely that we see an upside breakout first, possibly to 1140 or so, before a big break develops.

I have been expecting a drop to 1040 or so. But I am becoming very uncomfortable because the market is NOT displaying a normal bearish rhythm - successive "take no prisoners" declines separated by modest, relatively brief rallies. Instead we are seeing brief selling spasms followed by extended sideways action.

For these reasons I covered my earlier short for a modest profit. If this market should move back above the 1100 level I will be convinced that a substantial rally is underway.

Note: The March 2010 contract will become the active contract starting with the pit open tomorrow.

5 comments:

curt said...

i agree with you carl and i'm a bear!! this breakdown has gone thru some significant support on a number of indexes but its not drawing the selling one might expect.

P said...

Very insightful analysis again Carl. Glad I did cover my shorts following you. Thanks for everything!

I dread the day you'd stop sharing your views with us.

Narayana said...

That's a good point. I think Gold also wants to make a new high as well, which should bring the mkt along for the ride.

jeff said...

Carl,

I have been mentioning a possible triangle pattern that would lead us down to 1080 or so and upon getting towards this level earlier, I covered my shorts thinking we would see some upshoot. However, I don't believe 1140 is in the cards given all of the technical overbought conditions and will use any strength up to 1120 to buy-back my shorts.

Given the activity over the past month, strength is dimishing and volume is declining, but that doesn't preclude us from enjoying a little holiday rally into year end.

However, come January, all bets are off to the long-side.

Adsense said...

Carl
i mentioned a few days ago that i was initially thinking the market would peak out in the jan to march time frame yet was becoming a skeptic due to the extremes im seeing in some of my longer term indicators , well today im still seeing some longer term oversold readings . my bias is becoming more and more that we will see a sideways to up range traded market with an eventual stronger run upwards begining in the mid feb to mid march time frame , hence this rally should probably extend towards the mid 11,000 to low 12000
range into aug 2010 before we see a larger decline , bottom line
the lindsay time spans for a sub normal advance at the least is still in the cards .
joe