About 9 days ago, the markets experienced a 300+ point shock event down. However, that shock event’s price appears to be stabilizing after Friday’s large PPT reversal bounce (which began 4 hours after the Japan market open, when the Nikkei was down over 400 points). I would note that Friday’s large bounce came on average volume, so large volume days consistently remain associated with selling (distribution) days at present. As long as $SPX 1930 support holds, the bulls have an edge up to next resistance at 1942-43 and then 1955 (the 50 MA). After that, it will take a special effort to go much higher on this low volume (imo). If the volume profile changes (e.g., accumulation), then of course the trend up can resume (easily), but until it does I am more likely to eventually re-short into the noted resistance levels of this blog post.
Assessing Recent Damage
Dow Pull Back (Friday’s PPT reversal came on lower to average volume)
After Friday, we are now retracing back up. However, I want to take a moment to show how the recent pullback introduced technical damage to the long 2014 climb of the markets. First (see chart above), after a 5% pull back the $INDU’s trend is being challenged. We have a 17-43 crossover (which is suggested as a trend change signal by author and trader Jea Yu) on the chart. Here are some of the other market weaknesses I see developing.
- Transports (a 9% pull back) saw an exit from the sector on volume (that’s distribution)
- Semi’s tumbled 7.6% (a clear correction) leading the tech sector down.
- Many market internals remain negative, for example the NASDAQ New Highs / New Lows is still well below zero line (a very negative signal)
- Banking sector ($BKX) has crossed below its 200 MA
I am flat. After holding short for last week, I was stopped out on Friday. I may test a couple of longs beginning Monday, but my trading focus is (mostly) on determining the next major market swing now that the market shock event appears stabilized. The markets can retrace up here (and possible resume the rally above $SPX 1955), but the pull back’s damage has NOT been undone (yet).
