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Stocks Price and Structure Support the Downtrend

Below is the link to the weekend Briefing.  For weeks I have been pointing out how the structure of the Stock Indices was not confirming price.  Last weekend, I posted a Blog titled Stocks Post a Series of Lower Highs.  In that post and the accompanying Briefing, I outlined how the trend is Stocks had changed to a downtrend and to expect lower prices and at least a test of 2030 in the S&Ps.

The thrust lower at the end of the week was accomplished on extremely strong internals.  The only information from the Indices there may be an impending pause was the divergence in Breadth from the NASDAQ and the extreme oversold condition of the Indices.  Both of these warn of the possibility of some type of rotation up to work off the oversold condition.  A lower low is possible on Monday but, if the internals are diverging from Friday’s low, that would suggest the impending rotation to work off the oversold condition.

As I outlined in Thursday’s Briefing, 1970 in the S&P was the next level of support.  The S&P traded right to that before time ran out and trading ended.  Trading much below and closing below 1970 will increase the probability of a test of the October low in the 1800 area.  As long as the S&P holds below 2030, I fully expect the 1800 area to be tested.  Keep in mind, markets rarely move in straight lines.  Typically, there is a run, a pause, a run and a pause.  Also, after extreme price moves similar to the last two days of trading, there can be a sharp move in the opposite direction.  This does not change the trend and typically draws inexperienced investors in thinking a low has been reached.

Silver needs to confirm the move higher in Gold.  If it does not do that soon, I will  become skeptical of the attempted rally in the Gold market.  Silver must confirm the move.

The Markets in Development Briefing

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Stocks Post a Series of Lower Highs

Below is the weekend Briefing.  A trend is defined as a series of higher highs and higher lows, or lower highs and lower lows.  As you will see, in the near term, we have a series of lower highs and lower lows.  There is an inter-market divergence between the NASDAQ and the S&P as of Friday’s trading.  While Breadth has expanded nicely on the move off of the last low, volume has declined substantially.  This suggests, unless new buyers come into this market to sustain price, a potential reversal may be in the offing.  Also, new lows expanded last week and new highs declined.  Therefore, the expansion of Breadth is the only positive to the structure of the price rally last week.  It will need much more support than that to sustain a continuation of price moves higher and to eliminate the series of lower highs.

Stops should have been hit on the metals, booking good profits.  Stand aside for now, as Silver had a substantial move to the downside.  It is typical for a breakout point to be retested.  If that is the case, it will setup new long entries soon.

Oil is still showing weakness.  Use Friday’s low for short entries.

The Markets in Development Briefing

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Stocks Move Impulsively Lower But Approach Support

Below is the link to the weekend Briefing.  The Stock Indices sold off on Friday after the employment numbers.  However, going into the low of the day there was an internal strengthening suggesting some type of move back up was in the offing.  That is exactly what occurred Friday afternoon going into the close.  The structure suggests there could be an additional thrust lower on Monday, since the divergence in Breadth was not great.  However, if that does occur, it will likely bring the Indices to an extreme oversold condition, which would then suggest some type of move back to the upside to work off that oversold condition.  Watch the internals carefully on any additional move lower on Monday.  If there is a move up immediately on Monday, how that develops will be very important.

Longer term, the Indices and in particular the S&P have been in a trading range since the first of the year.  2125 is its upper extreme and 2030 the lower extreme.  At this point the structure suggests the higher probability to test 2030.  However, if 2030 is broken to the downside, that will mean larger money is beginning to sell and the potential for a greater degree timeframe move lower has increased substantially.  Based on the current economic environment and geopolitical events, it would not be surprising to see a break of 2030.  If there is, it will be a tremendous opportunity to profit from short positions.

The Markets in Development Briefing

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The Structure of Stocks Weakens Significantly

I was traveling all week and returned late Thursday night. As I reviewed the development of price for the week in the Stock Indices and the structure of that development, I was extremely surprised. The S&P moved right into the 2125 area, but it did it on declining volume, declining breadth, the number of new lows exploding and declining volume increasing over advancing volume. In other words, a few tech stocks were carrying a speculative move in price development that was not being supported by the rest of the market. The structure of the move was weakening fast, leaving no other alternative but a move back down.

The importance of what occurred last week is significant. Unless the structure of the market strengthens early next week, I expect to see the S&P test 2030. That will be significant support. However, if that is broken, the continuing weakness of price structure will weigh on price development and there could be a substantial, sustained move lower. Keep in mind, the Indices have been in rotation and unable to breakout since February of this year. 2030 in the S&P is the lower extreme of that rotation. Trading and closing below that level suggests a greater degree timeframe is taking over that will lead to a greater move to the downside.

Markets never move in straight lines. They run and pause, then run and pause again in all degrees of time. Expect periodic pauses on any sustained move. How those pauses develop will be important to analyze in determining the continuation of any move.

The Metals were slammed this week. I have felt and stated many times I think the Metals may be reaching a point where we could see a significant move to the upside. I have not suggested long positions because I have expected a continuation of selling, but I am looking for a bottoming pattern. One possibility is the move lower this week could be a blow-off bottom. This occurs when sellers dump all positions and exhaust themselves. There is nothing left to sell and buyers begin to step in. If this is the case, we will know through an analysis of the structure of any move off of the lows. However, until that time, be wary of any long positions.

Oil appears to have much lower to go. Price development and the structure suggest a possible move down to the 33 – 34 area.

The coming week will be very important to the intermediate to longer term analysis.

This is the link to the full Briefing:  The Markets in Development Briefing

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Market Structure Not Supporting Price

Below is the link to today’s Briefing.  I took a little longer time tonight to analyze the price development and structure in multiple timeframes.  I think you will find it informative.  Basically, the current rally up to test the upper Key Reference Areas is not supported by the market structure.  In fact, today there were declining new highs and increasing new lows.  Breadth was negative most of the day.  Volume is non-existent.   Unless those change, the Indices are in a position of a potential rotation down and are at significant resistance where rotation has occurred since February of this year.

I will be traveling the first part of next week and will be unable to prepare a Briefing.  However, if there is a significant move, I will address it in an email to subscribers.

The Markets in Development Briefing

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Price Development Is Confirmed By The Structure

Below is the link to today’s Briefing.  Yesterday, as I suggested it might be, was a one day wonder.  Obviously someone was trying to kick off a significant rally, but they failed.  Yesterday’s range was completely retraced today.  I am not interested in the news events of today.  What I am interested in is the participants reaction to the news in the various markets and the strength of their conviction to any price move.

Yesterday I pointed out the incredible rally in the Indices was not confirmed by the structure of the market.  That left the rally very suspect, unless the structure strengthened.  That did not occur today and we were down significantly.  The Indices reached an important low today that was confirmed by the internals.  However, they are at a point of being extremely oversold, suggesting the possibility of some type of countertrend rotation to work off the oversold condition.  This does not preclude the Indices from trading substantially lower first.  However, it will be important to look for the potential for a bounce, especially if there is a divergence in Breadth tomorrow.

Trading and closing below 2032 will open up the higher probability of a move down to the 1970 in the S&Ps.

The Markets in Development Briefing

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Stock Indices at a Critical Level

Below is the link to today’s Briefing.  I have taken the time to explain the run/pause functions of the markets and a trend.  Important to the explanation is to understand the markets run/pause in all degrees of time.  Significant to this is the fact the Indices have had a good run coming into the lower support levels.  Volume confirmed the run and did not diverge going into support.  This suggests sellers did not exhaust themselves but merely may have taken a rest.  If that is the case, when selling begins again, it should produce a move that is at least as great as the previous run.

However, while the current pause may be part of a greater degree trend change, if the upper extreme of that rest is traded through and volume is increasing, it negates the analysis above and will raise the probabilities of a move back up to test the highs.  This is a lower probability but must be considered as a possibility.

My point is, while the pause has a wide range, the extremes of the rotation are offering areas of excellent trade location where a large move may develop, especially if that break is to the downside.  As always, on any breakout, volume should confirm by increasing to support the new trend.

The Markets in Development Briefing

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Stock Indices Break Below Important Support

The link to today’s Briefing is below.  From a price development perspective a lot of damage was done today in the Stock Indices.  The S&P has broken down below 2065.  The Transports closed below 8250.  The Industrials appear to be breaking down outside of their rotation.  The NASDAQ closed below its lower support.  Most important, the structure of the move was strong internally.  The day patterns suggest additional selling tomorrow.  However, the Indices reached a point of being extremely oversold today, where we can typically expect some type of rotation to work off the oversold condition.

The Indices can stay oversold for a long time and selling can certainly persist tomorrow, but we must be aware markets never move in a straight line.  Therefore, I have to expect some type of rotation up.  How that rotation develops will be extremely important.  Also, holding the S&P below 2065 and the Transports below 8250 will be critical.  If they do hold below those levels on any rotation, it will suggest we have are transitioning into a greater degree timeframe move lower.  If there is a break above those levels and close above those levels, the probabilities will have switched to today’s move being a false breakout.

As I said in the previous Briefing, expect volatility this week.  That is certainly what we were faced with today.

The Markets in Development Briefing

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A Week of Much Volatility May Be Coming

The link to Friday’s Briefing is below.  I wanted to wait as long as I could this weekend to do the analysis and recording.  It appears the Greek situation is not going to get resolved.  Asian and Middle East markets are already down.  If this persists at the Globex open this evening, we will likely see a large move to the downside.

As you will see in the Briefing, Breadth was strengthening going into Friday’s close.  This suggests the higher probability of a more higher on Monday.  However, internal divergences typically are eliminated on a news event.  We certainly have a significant news event in front of us.  Expect a lot of volatility and for the powers that be to put as good a spin as possible on any Greek default.

Markets are closed on Friday.  Normally, as the week progresses, volume would fall off in anticipation of the long weekend.  However, that may not be the case, due to events in Europe.  Additionally, we may begin to see the Metals making significant moves as well.  This is the time period when I am looking for the Metals to begin bottoming.

Expect a roller coaster ride.

The Markets in Development Briefing

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Stocks May Be Entering Critical Area in Terms of Time and Price

Below is the link to today’s Briefing.  The Stock Indices are looking very tired.  For quite some time price has held up longer term in spite of weakening internals.  While the rotation back down does not have the appearances of being impulsive, that can always change.  Yesterday’s volume was strange.  Today’s was better, but still fell off as the market moved down.  There is a slight divergence in Breadth over yesterday.  Unless that is eliminated tomorrow early in the day, it could be signaling some type of rotation back up.

The Transports are right at the 8250 area.  Breaking below that could usher in selling in some of the other Indices.  The S&P closed below 2096 today.  As long as it remains below 2096, the probabilities are such that we will see a retest of the 2065 area.  If and when that occurs, it will usher in a very important and decisive time for Stocks.

The Markets in Development Briefing