What happens after the model identifies an undersupply condition?

Recall that we identified an undersupply condition earlier this morning...and there was another on Aug 21 (2 weeks ago).  So, now that we have identified the condition...how do we trade it?  There are a few possibilities, and they are all .

1. The large buying overpowers the market, and the shorts experience unduly large amounts of fear causing massive cascades of short covering.  This creates a supply distribution (vertical price movement)..normally the same size or larger than the original vertical price movement.
2. The undersupply condition does not create massive fear in the shorts.  This results in sideways price action.  In this situation, the large buyers that still need to exit will be the offer in the market all day long to exit their positions whenever there is strength.
3. The day after the initiating buying, there is an attempt at large selling.  In this case, there are 2 possibilities.

•  The sellers overcome the short fear in the market...forcing the large long to "long liquidate."  This is just like short covering bursts, but in the opposite direction.

• The sellers are NOT able to overcome the short fear in the market, and the day's sellers throw in the towel, taking the market back to the top of the bell curve.

You should notice that the majority of these possibilities are still dependent on price action.   The only thing that is guaranteed when we identify an undersupply condition is that the first trade cycle will provide an opportunity to exit a long position above the mode.  We don't know until the trading day has progressed which type of day it will be.

Why this lesson today?  Because today is one of those days where the undersupply condition will not last past the day.  The large longs are the offer in the market today.  They are selling into any strength.  How do we know?  That's going to have to stay one of my secrets for now.

For the moment...the trade now is to sell the market if it gets to the top of the VAC (which is now 133-22)

good luck trading...govttrader out