Money Inflow Impact: January 3 - January 6

Many times the first day of the year is bullish as money flows into the market. Tuesday represented most of the gains occurring in the night session. However, we saw any bear raids contained. I do want to point out that the institutional activity did not display heavy block buying. Therefore we are seeing a market that is not demonstrating energy duration. We had higher highs that actually eclipsed the last several weeks of rallying. The lows of the last trading day of the year are now key. If we close below those levels, this market will have reversed. We have not seen a correction that has lasted for several days. This means that the extension of this rally is becoming more perilous without a sizable correction. The Federal Reserve notes were released Tuesday at 2:00 pm EST. This created a wave of persistent selling that drove the bonds downward to penetrate this morning’s lows. Now we are seeing how the market is not able to sustain rallies. We are experiencing an S&P market that has no follow through and is running low on energy. The fact that overnight Tuesday actually corrected and made lower lows demonstrates that the uptrend is very suspect. We have had a positive first trading day of the year and the fact that the 1280 price area was registered and not retested before a lower low was registered last night is a sign of a distribution topping action. The S&Ps are trying to hold, but it is requiring more plus tick. The bulls are expending more horsepower just to maintain prices. Ordinarily this much horsepower would have generated more price appreciation. I suspect this is still residual monies being invested at the beginning of the year. Markets this overbought need a 30 to 50 point correction to be healthy. The bonds seem to have selling pressure present throughout most of Wednesday morning. The afternoon brought stability. The last part of the day a rally minimized the day’s loss and demonstrated that the worst is probably behind us, at least for the short term. A key resistance is 144 and the elusive, yet cliff price is still 139.

Energy can be gauged by the amount of plus tick or minus tick. The normal affect of high plus tick is an acceleration of upward price movements. Thursday we expanded the amount of high plus tick, but the net price movement was negligible. Internally the market is becoming more overbought with prices moving sideways. Therefore, a correction of the internal overbought condition could correspond to some heavy price deterioration. Our profit objective for the advisory trade recommendation was reached!

The volatility has noticeably dwindled. Energy is building for a trend environment in the very near future. Ordinarily, the longer we stay in a contained price arena, the more energy is built. This week we have seen a containment of 20 S&P points. Therefore, a move of greater than that becomes a high probability. We experienced approximately 20 instances of plus 1000 ticks in an environment where the prices seemed to be incredibly heavy. It is always calm before the storm. The bonds are showing a different computer program governing them. In the past, they were the puppets of the Federal Reserve. Is that gradually changing to where they are following the S&P rather than leading? The oversold condition should bounce to 144.

Subsequent to the first week of trading the market is overbought. Any worse than expected news will bring this market back into reality—near equilibrium. Technically, the 1280 S&P area is resistance and the 1260 is support. Watch if the tick is less energized. It is essential!