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.
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.
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.
“Successful investing begins with an analysis of where
a market has found value.”
There are two types of financial analysis: fundamental and technical. What is most important in any analysis is the reaction of the market to information that comes into it no matter if it is fundamental or technical in nature. Understanding the behavior of the market participants can give an edge to an investor, or investment manager. The analysis we provide covers a variety of markets and has been proven successful over a period of time.
Whether you are an individual interested in managing or trading your own funds, an institution or an investment professional, the breakdown, analysis and determination of where a market has found value that we provide in our different services can give you an understanding of where to execute tactically in terms of risk and reward.
We have worked with many individuals, corporations and investment managers over the years in providing up to date analysis and recommendations. If you are interested in being trained in how to analyze and trade the markets yourself, our private consulting services will give you the tools necessary to develop your own investment business.