This post was written by Minyanville contributor Rod David. One of my favorite setups is a "session-long rally" (or session-long decline). Its primary elements are a gap up above the prior afternoon's high, that is maintained through a relevant timing window. Two other critical elements were both fulfilled. Notice how the gap up failed to remain above yesterday afternoon's high. The story doesn't stop there, as just a signal that failed to trigger. Its failure has all sorts of implications.
For example, overnight buying pressure had positioned the market for a session-long rally. We now know something about those buyers -- they're weak hands. Weak hands buying into trend highs might be bad timing on their part. Exclusively weak hands buying into trend highs is bad timing for the trend.
Another sell signal already in play had previously warned that intraday rallies were doomed to failure. The failed rally effort helps to confirm the prior signal. What we don't yet have is a signal that sellers are gaining traction, but the burden of proof is on buyers. Weak-handed buyers.
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