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

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

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

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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