“Successful investing begins with an analysis of where a market has found value.”

Stock Indices Short Term Oversold

Below is the link to last night’s Briefing.  The move down yesterday may be the beginning of another rotation to test 2065 in the S&P.  If that is the case, the failure of buyers to drive the S&P and other indices above their current highs will increase the probability of a potential break away from the 2065 area and a large degree move lower. 

As I have been stating and especially in Friday’s Briefing, the Structure of the rally was not supporting price.  It was anybody’s guess as to when a decline would come, but the Internals were sending multiple signals the rally was tiring. 

I have to expect some type of rotation to work off an extreme oversold condition.  If that is the case, how the Development occurs will be extremely important.  If there is a countertrend rotation, then it will open a tremendous opportunity for short positions.  If it is not countertrend, then we will test the highs.  Evaluate any move higher to determine if it is countertrend.

The Markets in Development Briefing

 

Stocks: Long Term Structure vs. Price Development

Below is the link to today’s Briefing.  It is a little longer than normal.  I wanted to take extra time to analyze the longer term development of the market and its structure.  This is very important in going forward.  The Indices are sending more and more warning signs of an impending rotation down.  While they can continue to move to slight new highs each day, unless the structure changes, there will be a good move to the downside.

The development of any move lower has a higher probability of being a greater degree timeframe countertrend rotation, similar to what occurred in October of last year, when the S&Ps tested the 1800 area.  Breaking that area would suggest a trend change.

For now, the trend of price is up.  Therefore, short term traders should be looking for long entries with the understanding the rally appears to be very tired and the Transports have just sent a warning shot over the bow of the other Indices.  We must be aware, if we do begin to see some selling pressure it could be the influence of a greater degree timeframe and therefore a greater move than a daily rotation.

How any move to the downside develops in terms of price and structure will be important going forward.

The Markets in Development Briefing

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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