Friday, July 02, 2010
Here is a point and figure chart covering the same period of trading in the September e-minis as the bar chart I discussed yesterday. This chart is a five point box, one box reversal chart of 24 hour activity in the e-mini.
One reason I like point and figure charts is that they can offer subtle clues about shifts in the balance of power between buyers and sellers. Generally speaking, sellers are in control when the chart shows more extensive sideways areas at the top of rallies than it does at the bottom of breaks. Buyers are in control when the sideways trading areas at the bottom of breaks are wider that those at the tops of rallies.
On this chart I have used red dash ovals to highlight the trading areas that developed while the sellers controlled the market. There was little sideways movement at lows but quite a bit of it at highs. But in June the situation has gradually changed. The market started to show more extensive trading areas near lows than near highs (green dash ovals).
In particular the trading range that has developed yesterday and today is growing by the hour and is already almost as big as the one that developed near the June 8 low and will soon be bigger than the one near the June 21 top. Moreover it is developing right at the lower trend channel line defined by the flash crash low and the May 25 low.
This is one more piece of evidence that buyers are assuming control of this market and that an extensive rally lies dead ahead.