Stocks after seven straight days of price range expansion generated an outside day yesterday (chart 1). Those that like running with the herd see this pattern break as a reason to reduce risk and take profits. Those watching this upside reaction (within cause building phase) from the safety of the sidelines are waiting for indications of waning force at resistance and support.
Resistance stands at 10,600. Support is defined as the 10,200 and 10,300 gaps.
What cannot go down with force often reverses and attempts to go up force.
REV(E), a cumulative measure of trend force, peaked ahead of price on 10/21. This divergence, a byproduct of a low volume rally, suggests waning upside force. Low volume rallies, however, have been a consistent observation of this secular bull market (since 2009). Adaptive investors; therefore, have learned to concentrate on downside volume/force. If support - 10200 gap, 10300 gap, or lower are tested on contracting volume, it would generate a bullish setup. The probability that the rally will continue increases with the number of bullish setups observed.
