Copied from a report I just wrote:---Market Direction (Watch for...

Copied from a report I just wrote:
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Market Direction (Watch for the break)

The following points are the underlying facts for this analysis:

1. The rally from the 21st – 28th of November was a very sharp rally on good volume

2. On the 25th of November we gapped higher on high volume and closed at the top of the range for that day.

3. From the 28th of November our market has gone sideways in a tight range holding well off lower levels made on the 21st of November 2008.

I highlighted the implications of this gap on the 25th Nov several days ago showing how the market has been finding support at this level and not breaking through it. Displayed below again:



My interpretation of this action is that due to the fact the market has not been in a rush to close the break, but instead is finding support on it suggests this is a period of consolidation were the market is burning time before possibly breaking higher.

This is supportive of the fact that the rally from the 21st to 28th of November was sharp and on high volume, what this means is that whatever cycle turned up here burnt itself out quickly due to the high volume – thus why the market was capable of going up so quick in a short period of time and now the market is consolidating and balancing out..

When should the market be rebalanced and in a position to move higher? When it hits the blue line below:



On the blue line the market is perfectly balanced time and price wise in proportion to the initial rally from the 21st to the 28th of November.

Similar occurrences of this price-time-volume relationship can be seen on past movements.

From June the 14th to July the 7th 2006 our market had a similar sharp rally and extended period of consolidation.

It is shown on the chart over page how the market consolidated until time and price balanced out (at “1”). In addition note the gap made on the way up and were the market received support in the consolidation period:



In summary watch how the market moves in coming days as we could be near the end of this period of consolidation and be in a position to move higher.