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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

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Countertrend Complete or New Highs Coming?

If you listened to last night’s Briefing, I suggested the move off of the recent lows was a greater degree timeframe countertrend rotation up and would be deeper in terms of time and price.  That was and still is the higher probability.  I also went through a calculation that suggested the potential for a drop in the S&P to 2052 before a 42 point move higher.  In today’s Briefing I outlined how the trading from yesterday suggested that 2052 area was still a potential before a rebound after the Fed announcement.  The low for the day was 2052.25 before the S&P exploded to the upside, thanks to the Fed.  That 42 points projected the area around 2094 as a potential stopping point.  The high today was 2099.75 before reversing into the close.  The only structural component that supported the move was NYSE Breadth.  None of the others confirmed the move.

Because the price development was significant, I have to allow for a slight new high tomorrow.  If that occurs and then the Indices trade back through today’s high, it will be an initial signal of a potential move lower.  Closing the single prints from today, will seal the analysis and the recent lows will be taken out.

Alternatively, any move higher on stronger volume, expanding new highs and stronger Breadth will suggest we will take out the high at 2118 and the potential to test 2150 has now become the greater probability.

Most of the markets had bullish day patterns.  However, if there is no follow through, those day patterns become bearish.  Pay attention tomorrow.  There will likely be some excellent opportunities.  Either all of the markets are going substantially higher, or the euphoria over the Fed today will come to an end quickly.

The Markets in Development Briefing

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Stock Indices Still in a Countertrend Rotation

The link to today’s Markets in Development Briefing is below.  It is important to note the potential longer term development of the Stock Indices may be changing.  If that is the case, we will see a confirmation of that change this week.  There is a Fed announcement tomorrow.  The Fed likes to use language that gives optimism to the Market.  Therefore, the greater potential is for a move up tomorrow, especially after the announcement.  If there is a move higher, how it develops will be important.  Also, that move will not eliminate the higher probability of another leg lower that will eventually test the October lows and likely take them out.  This could be an exciting move.  On the other hand, if the lower probability strategy plays out, we will likely know it tomorrow.

The Markets in Development Briefing

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Runs and Pauses

There are two important aspects in analysis.  The first is the Development of a Market.  Development pertains to price action or price development.  This understanding gives us areas that are deemed to be “fair value”, as determined by the participants and “unfair value”.  Second, and just as important, is analyzing the Structure of Price Development.  Structure tells us if the Development of price is strong and has a high probability of continuation.  Or, if it is weakening and warning the current Development may be coming to an end

For weeks I have been warning about the higher price development but the weakening structure.  This finally led to a selloff that began on February 25 until the close of trading on Friday.  It is extremely pertinent to understand price development and market structure in multiple timeframes.  In all timeframes markets run, then pause, then run again and pause.

In at least an intermediate term timeframe, the market has made a run from the February 25 high.  Friday it tested a lower trend line or support.  If there is going to be a pause before another run, this would be the time.

As a result, I have posted a Newsletter outlining the analysis for the coming week.  You can access it here: Financial Forecast 150314

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Stock Market Price Development Changing

Below is the link to today’s Briefing.  I alerted for weeks the structure of the rally was not supporting price development in the Stock Indices.  That led to the current selloff.  The move down is being supported by a strong structure.  The S&P has now closed beneath important support, suggesting the rotation down may be developing into a more intermediate term selloff.  The NASDAQ closed right at support and will need to confirm the S&P move by trading below today’s low and closing beneath it.

After yesterday’s rally, I advised the rotation up had all of the characteristics of a countertrend move and to expect lower prices.  It is important to remember, Markets do not move in a straight line.  They run and pause; run and pause.  There are slight divergences in the S&P internals that suggest there could be some type of rotation up tomorrow.  However, on any lower low, if those divergences are eliminated, then expect the S&P to test the next level of support at 2020.

In addition to the above, the VIX has not really spiked yet.  If the VIX were to begin rising, the velocity of the move down could accelerate.

There is a Fed meeting next week.  I fully expect the Fed to use some type of language to put a floor under the move down.  That could cause a greater degree timeframe pause as well.  For now, unless the current structure of the Indices changes, the trend is down.

The Euro has sold off significantly over the past several days.  So far, that move has been orderly, although extreme.  Gold and Silver have drifted lower as the Dollar has moved higher.  Keep an eye on the Metals.  If they begin to rise on any additional selloff in the currencies, even if the Dollar remains stable, it will be a signal the selling in the Stock Indices may accelerate.

The Markets in Development Briefing

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Stock Selloff Confirmed

As I have been discussing for weeks, the structure of the market was not confirming price development in the rally. It was only a matter of time before price would correct to the structure. Today’s selloff was significant. Important to the analysis is the fact there was no fear in the selling. It was orderly and sustained by increasing volume and decreasing breadth. Important support levels were broken, suggesting we may be transitioning from a short term correction to at least an intermediate term move lower. Monday and Tuesday’s trading will be important to understanding any development lower. With that said, the S&P reached a point of being extremely oversold. The NASDAQ did not. However, it does have some catching up to do. Also, the Russell and NASDAQ both had day patterns that suggest follow through on Monday. Therefore, expect the potential for additional follow through on Monday. If breadth and volume are diverging from today on lower lows in price, that would signal the probability for some type of rotation up.

The last thirty minutes in the trading day saw buying that came in on good volume. That could also suggest we may see some type of rotation up immediately on Monday. Whether there is a lower low and then rotation, or immediate rotation is not important. How the rotation develops and holding below significant resistance areas that were once support levels will be critical.

The last few days of selling may be the beginning of something larger. As I have written before, the analysis will have to be confirmed by price development and the structure of any additional move. Critical to the downside now will be for the S&P to close below 2070. That would increase the probability of another 50 point drop to test 2020.

This is the link to the analysis in video: The Markets in Development Briefing

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Development of the Stock Indices Did Not Confirm a Top…Yet!

Below is the link to today’s Briefing.  It is important to understand both the development and structure of any financial instrument.  The current rally is developing higher but on a very weak structure.  This suggests that, unless the structure strengthens, there will be some type of rotation down.  How that rotation develops will tell us a lot about the degree and timeframe of the rotation.  Today’s move lower in the Indices has the appearances of a structure for a move lower.  However, from a development perspective, it did not close below important support.  That leaves a large question as to whether this is the beginning of a longer term rotation lower.  The signal for that will be closing below 2100 in the S&P and seeing the short term structure of that move increase in strength.  So far, neither has happened.  But, it will be important to watch for that occurrence in the coming days.

The Markets in Development Briefing

 

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Investor beware! Trader get ready!

Below is the link to today’s Briefing.  It is a little longer tonight.  I wanted to take time to review the current structure of the Stock Indices.  While the structure continues to deteriorate, it does not preclude price from moving higher in the short term.  2140 in the S&P is a technical upside resistance area.  While that area could be tested, it will take some strengthening to do it.  Typically, that strength comes from a news event.  However, most of the news now is not positive.  When the selling begins, it will be important to analyze the development of the selling pressure to determine the extent of the potential correction.

The Markets in Development Briefing