Author: Joe Mertes

Stocks Pause But Internals Remain Extremely Weak

For the most part, the Stock Indices paused today. The Russell traded below Friday’s low but the SPY AND QQQ held right at it. We finished Friday at a very extreme oversold condition. While some of that was worked off today, we are still very oversold. I still believe, due to the weak internals, if Friday’s low is broken, we could see an acceleration to the downside.

Stock Indices Test Extremely Important Support

As discussed in Thursday’s Briefing, the Stock Indices tested important support on extremely weak internals that confirmed the move. Once again, the market is at an extremely oversold condition at an extremely important support level. This does suggest the higher probability of some type of pause or rotation to work off the oversold condition, unless today’s low is traded through and the internals continue to confirm the decline. If and when today’s low is traded through, selling has the possibility of increasing and we could see more impulsive moves lower.

Stock Indices Reach Important Support

The Stock Indices reached important support levels today. Breadth continued to decline supporting the move, but volume was not impulsive. This led to the rotation for the balance of the day and brought the market to an extremely oversold condition. Therefore, based on the oversold condition and being at important support, we could see additional rotation or even a move higher to test short-term resistance.

Fed Announcement Pressures Stock Indices

For the last two and a half days, the Stock Indices have been in a pause phase waiting for the Fed announcement today on interest rates. After that announcement and during the comment period, there was a lot of volatility. Finally, traders decided to sell. Short-term support levels were broken and this opens up the now higher probability of testing the June 17 lows. The Indices closed at their lows today, suggesting there will be follow-through tomorrow. If there is watch for any breadth divergence that can signal a pause or rotation back up.

Stock Indices Break Support

The Stock Indices this week broke important support levels. However, while breadth was supportive of the breakout, volume was not. This is still a market that makes an opening move lower and then spends the rest of the day in rotation on low volume. Once again, the rotation today offers the potential for a good trade location on Monday as long as breadth is confirming. At some point, volume will begin to support a move lower. When that happens, we will see much more impulsive moves.

Internals Strengthen Going Into Today’s Low

Market breadth strengthened somewhat in today’s trading, even though the Indices were down slightly. Volume also fell off, suggesting the rotation at important support is possibly going to continue. Other information points to a possible selloff in the next few days breaking support and testing the June 17 lows. The first hour of trading tomorrow will likely resolve the conflicting information. If there are lower prices, be sure breadth eliminates the divergence created today or there is risk of another rotation up.

Stock Indices Have A Bad Day

The Stock Indices had a terrible day after the release of the CPI numbers. As the day progressed, it got worse. While the decline was substantial, the market internals confirmed the move. The question for tomorrow is whether there will be follow-through. They did reach a point of being extremely oversold at the end of the day, but that does not preclude lower prices tomorrow. If there is follow-through, watch for internal divergences that can signal a possible pause or rotation up to work off the oversold condition.

Stock Indices Reach Important Resistance

The Stock Indices reached important resistance today. However, market breadth continued to be strong, suggesting the market wants to go higher. While volume is still extremely low, breadth is suggesting the possibility of higher prices. There is a key news event tomorrow in the CPI numbers. They can have the effect of changing the perception of value on the part of traders. Use caution tomorrow, especially at the open as they try to interpret the numbers and seek value in one direction or the other.