Points to Ponder - 5/06/11

This past week is a perfect example of a market environment rarely seen but always re-appears; the capitulation environment. Thursday we saw multiple instances of very high minus tick occurrences with persistence. This type of situation is many times initiated by a news item that is a catalyst. The catalyst is not effective unless the environment is ripe for the combustion. The market had the Bin Laden news announcement of his death that as it was released in the press provided a spike high to 1373. The key to this euphoric news item is its staying power. The resulting thrust was on ice and slipped never to recover. The next rally failed miserably to mount any buying surge in volume or price. Slowly, the downside took hold until Thursday provided a panic environment whereby the commodity nose dive through shock waves into the stock market. Uncertainties and bizarre rarities cause a volatile atmosphere that whips prices and depletes energy. The energy on the upside dissipated. The energy on the downside accelerated until it climaxed. We have now completed a full swing mechanism which is like a swathe that carves out a range like a pendulum swing. This generally is the outskirts of a new canyon with the high of 1373 and a low of 1325 or approximately 50 points. This will create a lessening of intensity, volume and uncertainties which makes trading more predictable. It is what I call the purging which releases stresses making the market more normal.

I am very excited about the atmosphere now. It should start to reflect a normal, less dangerous environment whereby you can handicap risk with more safety. Be ready to prosper.