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.