Technical analysis doesn’t tell us everything about the future movements of the market. But, like tracks in the snow, technicians’ charts graphically show the history of price movements and provide the ability to study and interpret the past for clues as to direction. And they even tell us of probable future resistance and support areas.

Yesterday’s commentators were all aghast over the record of four consecutive days of over 400 points each for the Dow Jones Industrial Average. And they attributed yesterday’s recovery to all sorts of phenomena: rumors of a short-sale ban in Europe, an upcoming meeting of the leaders of France and Germany, corporate insider buying, etc.

On Wednesday, I discussed the huge blocks of stocks representing short sales that were purchased at pre-programmed levels. This practice, called “high-velocity trading,” is what has accounted for the huge swings of the past four days accompanied by the highest volume of the year. Yesterday’s 1.88 billion shares was the lowest of the last four days, with the others over 2.5 billion. Only computers programmed to automatically execute thousands of trades in minutes can account for such volume. This was confirmed by Dick Grasso, former NYSE chief, who yesterday said that less than 10% of NYSE volume came from the public.

Note that two of the last four days closed exactly at 1,173 (Tuesday and Thursday), which I highlighted on Tuesday’s chart (below) as a significant resistance number. Also, two days closed within a single point of 1,120 (Monday and Wednesday).  The midpoint of the four-day range is 1,146. Now, here is the kicker — the minimum target of the neck line break at 1,260 is 1,149, just three points from the midpoint (1,146) of the trading range of the last four days. There is little doubt that the high-velocity machines have these numbers cranked into them. And it tells us of the importance for traders and investors alike of a break from this range.

Conclusion (back to Tuesday’s chart): An upside break from 1,173 could result in a powerful but deceptive rally. It is common for Head and Shoulder neck line penetrations to reach their objective, reverse, and run back up to or even exceed the neck line, which is at 1,260. Why deceptive?  Because these rallies almost always fail since the market’s confirmed direction is down.

But a downside break from 1,120 could take the 500 deep into the trading range of last summer highlighted on Tuesday’s chart. High volatility is not over since the high-velocity traders will not quit until forced by circumstance or regulation.

“There are no coincidences on Wall Street.” — Charles Dow