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Stocks Complete Another Rotation.

For the past few weeks I have been discussing the rotation in the Stock Indices and the importance of the 2065 area in the S&P to be more specific.  I also have suggested the rotation over the last month looks a lot like distribution, which occurs around market tops.  When distribution occurs, large money distributes shares slowly to small money.  This occurs with larger volume.  As the market declines, they step back from selling to allow the market to move back higher.  Small money steps in to buy the dips and you get a rotation back up on low volume.  That is certainly what has occurred and specifically today: large volume selloffs and low volume rallies. 

I received a phone call from a friend who wanted to discuss the market development today.  During the conversation, he told me a client of his informed him he took out a second mortgage on his house to invest in the stock market.  This is certainly an indication of large (smart) money selling to small (dumb) money.  While the Indices can certainly move to slight new highs, once again, the structure is not supporting it.  The higher probability is always for rotation. 

At the end of the day today, the Indices were extremely overbought and the day pattern is exhaustive in nature.  The only positive for the move was Breadth.  It was at an upper extreme.  It is now at a point where some type of rotation down should occur.  This is the same position the Indices were in when testing the lower extreme and in particular the 2065 area in the S&P a few days ago.  I suggested there had to be some type of rotation up and how that developed would be important. 

Now we find the Indices testing the upper extreme in an overbought condition.  Therefore, there should be some type of rotation back down.  How that develops will be extremely important.

The Markets in Development Briefing

 

 

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Stock Indices Bounce Off Significant Support

The link to today’s Briefing is below.  I spent more time on the Stock Indices today because they are at a critical level.  Price development and the internals are suggesting the potential for a large move to the downside.  However, because there are short term divergences going into the 2065 area in the S&P, and it is an area of unfair value since the beginning of April, where rotation up has occurred, we could see rotation up tomorrow.

Friday the employment numbers are out.  The Indices may pause tomorrow in rotation in anticipation of those numbers.  If the S&P were to break through 2065 on good volume, it will open up a move down to test the 2030 – 2020 area.  If it is unable to break through that area, the probabilities will have increased for another round of rotation back up.  The Briefing outlines areas of resistance that will be important in the coming days.

The Markets in Development Briefing

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Stock Indices Test Highs But Divergences Exist

Below is the link to today’s Briefing.  When I work with clients, I try to demonstrate the importance of viewing the development and structure of any move in any market in multiple timeframes.  While the Indices eliminated the series of lower highs I have been watching, the structure of the advance was very weak.  Also, the intermarket divergences continue and the NASDAQ has some of the appearances of the year 2000, when comparing the futures with the composite.   

Based on the above, I am very concerned over this market in the intermediate and longer term timeframe.  The structure is not supporting a continuation of this rally, at least at this time.  However, there are times when exuberance or psychology will outweigh structure and allow for price development to continue unabated, as it did in 2000………until it stops.  Therefore, it is difficult to imagine the Indices being this close to all-time highs and not putting in at least slight new highs.

Be aware of any short term inter-market divergences that may exist in the near term, especially if the NASDAQ puts in a new high that is not confirmed by the S&P. 

Price development when analyzed against the structure longer term is still showing warning signs.

The Markets in Development Briefing

 

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Stock Indices at a Critical Developmental Level

The Briefing for Friday is a little longer than normal.  I wanted to review what I have been saying about the longer term development of the Stock Indices and then give a good analysis for strategic purposes.  Additionally, the Metals may be setting up for a large move as well.  The technical pattern is not yet confirmed but it will be important to observe their price development carefully.

Stock Indices sold off substantially and have reached a point of being extremely oversold.  While price can continue lower and the Indices can stay oversold for a longer time, this is the point where we have to consider some type of countertrend rotation to work off the oversold condition.  If and when that countertrend rotation occurs, it will be very important to analyze it.  If it is, in fact, countertrend and not a simple rotation back up to test the highs, then then next move lower could be significant.

As I have discussed for weeks, the structure of any rally has been weak and weakening.  It was not until a few days ago that we saw any potential strengthening, but that was quickly erased with Friday’s trading.

The Markets in Development Briefing

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Stock Indices at Critical Decision Level

It is important to understand price development, but it is equally important to understand the structure of any price move.  For quite some time, I have been stating the structure of the increase in price has been weak and weakening.  Other technical aspects suggest the potential for some type of greater degree timeframe rotation down.  However, the Stock Indices are now at a critical decision point.  Either they turn down in the next few days, or we will likely see new highs put in before we potentially could see another move lower.

In addition to the above, certain aspects of the structure are improving.  While the geopolitical and economic environment suggests the opposite should be happening, I cannot ignore what information the market is giving me.  However, while I am still not positive on the Indices, I have to be aware the probabilities may be shifting for another move to put in new highs.  Yet, I am cautious on any move higher.

Below is the link to today’s Briefing.

The Markets in Development Briefing

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Are the Bulls Exhausting Themselves?

The link to today’s Briefing is below.  There was an interesting event today in Stocks.  In the Globex session stocks sold off on very good volume.  However, when the Asian and European markets opened, they clawed their way back on low volume.  Remember, I have lower important support in the S&P at 2032.  Breaking that level will suggest intermediate term timeframe investors are leaving the market.  This should accelerate selling.  The cash session opened and stocks sold off once again on extremely good volume.  Keep in mind, this is a holiday week and I expected volume to be light, as it usually is.  The S&P moved down to test 2040 and then the balance of the day saw rotation.  Finally, after the cash close and on low volume, the S&P rotated back up, along with the other Indices.  Could it be the bulls are having difficulty sustaining price during high volume timeframes?  If so, it is only a matter of time before we see a large move.

Today’s trading strengthens the fact that 2032 is very important.  Any move below that area should increase selling pressure.

Trading could be light tomorrow in front of the Easter holiday.  But, I was surprised at the volume during the selloff today.

The Markets in Development Briefing

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Stock Indices Near a Precipice?

The link to today’s Briefing is below.  In the Friday Briefing I outlined the rotation up off of Thursday’s low had two of the characteristics of a countertrend rotation.  I stated the third characteristic would call for a move higher on Monday that would test the 2066 – 2075 area in the S&P.  The high yesterday was in the 2082 area.  As I have said before, nothing works all of the time, but the important part of the analysis was that even though the Market traded slightly above resistance, it reversed today and reversed impulsively.  What happens tomorrow will be important.  There is a possibility we could see an acceleration in selling beginning tomorrow.  If lower support levels are broken, that selling could intensify. 

If the Markets are going lower, then it will be important on any rotation up that it not trade through yesterday’s highs.  Breaking below 2020 in the S&P will likely bring in additional sellers and suggest an intermediate term rotation down is in the offing.

The Markets in Development Briefing.

 

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Stocks Test Critical Support

It was a very interesting day in the Stock Indices.  To summarize, the lower low did not occur on diverging internals, as discussed last night.  There was a lower low, but no diverging internals.  That said, there was convictive buying that came in at today’s low and drove price higher on declining volume.  That suggests two possibilities.  The first, is a countertrend rotation has begun and it will continue through most of tomorrow.  I believe that is the lower probability.  The second is we will see a lower low tomorrow on diverging internals and that will lead to a countertrend rotation correcting the move down from the high this week.   

From a longer term perspective, the Indices are at important support.  This alone would cause them to pause before  potentially breaking through.  However, I must keep open the possibility this support will hold once again and we will see another rotation back up.  Again, I think this is the lower probability at this time.   

If support is broken, preferably after a pause here, the next thrust down could be significant and will likely test the October lows in the S&P in the 1800 area.

The Markets in Development Briefing

 

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Stock Indices Confirm the Beginning of a Larger Move

For the past few weeks, I have warned the structure of the rally in the Stock Indices was weak and weakening and that a potential larger degree move to the downside was in the offing.  When that move came and tested a lower support line, I advised of the potential for some type of greater degree rotation back up to work off an oversold condition and correcting the move down in a larger degree of both time and price.  I stated the rotation up should complete at the end of last week with the S&P not trading much above the 2096 – 2098 area.

I gave the Indices until the end of trading on Monday in terms of time, but felt that price had reached a maximum at 2107.  Monday saw basic rotation on low volume.  Tuesday produced rotation until the end of the day, when selling started.  However, that selling was not impulsive.  As I stated last night, it could become impulsive with Breadth declining and Volume increasing on any move lower.

Finally, I said to watch for the Russell to begin selling off.  If the Russell traded below the previous day’s low, it would be an initial signal of a decline.  The Russell traded below yesterday’s low almost an hour prior to the other Indices following.

Second, I stated to watch the area between 2075 and 2070 in the S&P.  If that were traded through, it would raise the probabilities of a greater degree move to the downside was beginning.  The S&P traded through that area with conviction in the form of single prints and high volume.

Third, I advised if the move up from last Wednesday’s Fed announcement was not defended by buyers, it would signal another increase in the probabilities the move down was becoming impulsive and was of a greater degree timeframe, and much lower support would be tested.  That area was closed today and closed with conviction.  There was no defending the buying that came in after the Fed announcement.

The Indices, after today, are getting to a point of being oversold.  I expect to see follow through tomorrow but then I expect a pause to work off the oversold condition.  The Briefing below outlines levels of support, and important resistance that should not be traded through, if this is the beginning of something greater to the downside.

The Markets in Development Briefing

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Hedging the Analysis of Stocks

Below is the link for today’s Briefing.  Over the past several days my analysis has suggested the greater probability, based on price development and structure, was to see a downturn in the Stock Indices.  As explain in the Briefing tonight, I am hedging the analysis.  I have stated previously I would only increase the probability of the Indices moving to new highs, if the structure of the rally changed and supported price.  After the Fed announcement on Wednesday, the structure is certainly strengthening.  However, there is still some weakness in parts of the structure.  Therefore, I am hedging until Monday.

I have discussed the rotation up as being countertrend to the move down from all-time highs and that it would be greater in time and price to any previous countertrend move.  Monday is time enough and we are certainly there in terms of price.

If the Indices do not turn down and turn down impulsively by the end of trading on Monday, then the analysis of making new highs and testing the 2150 – 2160 area  in the S&Ps is the higher probability.  That is the next upside resistance.  A lower rotation that is not impulsive will only delay moving to new highs for another day or two.  Therefore, unless we see substantial selling on Monday, the Indices will likely move to new highs.

The Markets in Development Briefing