Tuesday  Evening 17 November 2009

Charts can be like clouds, at times, as unlikely a comparison as it may seem.   Yet, the same chart can be
interpreted by so many people in a variety of ways, it would make one wonder what validity can be
attached to a chart?

Take a look below, and what do you see?   [Ignore the comments]   Then read on.

Lets us deal with factual observations in order to draw somekind of reasonable conclusions derived from
the facts gleaned.  First and foremost?  The trend, of course.  The single most important piece of
information.  Why?  It identifies the prevailing path of least resistance, and that is where money can be
made, going with the flow. 

The trend is up!  How do we know for sure?  The highs are higher and the lows are higher.  A few days
ago, we viewed the trend as sideways, after a failed upside probe five bars ago, followed by a wide range bar down on increased volume.  Since, price has made new highs, and the arrow has to point up, based
on the observable facts.  Of this, there can be no dispute.

This brings up a minor point.  There does not always have to be a trend.  Sometimes, it can be sideways
or too difficult to determine.  That is important information, as well.  Leave them alone, and look for a
market that has a defined trend.  Trading with a trend gives an immediate edge.

Because the trend is up, we know that half the decision-making has been eliminated...buying or selling.
The only position in the time frame chosen for analysis, in an up trend, is to be long, never short against
the trend.  [Take a look at the Natural Gas chart from an article written earlier today to see why one
should never go against the trend.  Natural Gas - A Low-Risk Short-Term Trade.  Anyone foolish enough
to buy that on the way down was inviting margin calls and losses.]

Wait!  Didn't that article say we recommended a long position?  As a matter of fact, yes, but we did so
based upon an intra day time frame in which the trend was NOT down.  Like we repeat over and over,
know the trend in the time frame one is trading, and the next higher time frame, in addition.

Back to the S&P chart.

There are some other facts to be gleaned.  The important ones have been noted on the chart.  The swing
highs, or upward thrusts, are getting shorter.  The horizontal line drawn across the July high is greater
than the next higher thrust in September, where another horizontal line has been drawn.  The thrust
high in October made less upside progress, and we do not yet know where the November high will be.
From these observable facts, we can say that the trend, while up, is weakening.

What else do you see? 

The declines from each successive high are getting deeper.  The decline from the September high retraced
just over 50% from the early September swing low.   The decline from the October high retraced over 75%
of the early October swing low.  More facts that say that the trend is weakening.

Notice the volume during the first half of September rally.  It was the highest volume up to that point.  In
the second half of September, on the decline in price, volume dropped, a normal reaction for an uptrending
market.  But, in the second half of October, on the steep decline, [over 75%], volume increased, saying
sellers were winning the battle.  The duration in number of days down was also greater than the number
of days down in the September reaction low.  Volume has remained low during the current November
rally.  All facts.

What can we conclude?

The trend is up, but it has weakened.  A weak trend is susceptible to selling entering into the market.
Speaking of selling, it has been absent.  Just when it looked like it was game over at the end of October,
when sellers had buyers on the ropes, buyers were doing a rope-a-dope and came back, although one
can say definitely not with a flourish.

To buy or not to buy, that is the question?  We have not been buyers of this rally, or even the preceding
rallies shown in this S&P chart.   The facts keep getting in the way.  Plus, before we were bothered by
the POMO effect.  The first reason was given in early August, S & P - A "Muscled" Market, and then we
could not shake the POMO effect, [Permanent Open Market Operations], S & P - Will POMO Win Again?

We cannot subscribe to the long side, based on factual observations and inferences drawn thereform.
Nor can we forget the similarities of the shortening of the swing thrusts back in the Fall of 2007 that led
to the Fall of this early century.  Trends to end, and we have been waiting for the end of this one.

It would seems we can all agree on the facts contained within the chart.  Now there are probably a lot
of varying opinions on what to do about those facts.

 We certainly cleared that up?!  [At least for our purposes.]