The Stock Indices rallied today into important resistance. Interestingly, as they approached those levels, the buying began to wane. Market internals are still diverging. There is a Fed announcement next week that will certainly have an impact on the determination of value. Anything higher than a 25 basis point increase could cause problems for the rally. However, if they are able to trade, close, and hold above resistance then the next levels of resistance are outlined in the Briefing.
In yesterday’s Briefing, I said the Indices appear undecided about whether they were going higher or lower. Today, it appears they resolved that conflict. The SPY and QQQ both traded and closed above resistance. More importantly, Breadth strengthened nicely to support price and volume increased as well. This leaves intact the possibility of a greater degree countertrend rotation higher. In the SPY the next upside support is 410. Above that is equality in the 440 area.
As you will see in the Briefing, the Stock Indices continued their rally into today. However, as discussed in last night’s Briefing, the internals continue to diverge. Price development suggests the longer-term analysis of the rally being part of a countertrend move from the all-time highs is on track. Price structure suggests it may not make it that far, unless the internals stop weakening. In any event, we now have good support and resistance levels to monitor.
The Stock Indices broke out of a rotational pattern today. While the breakout suggested a higher probability of a greater degree time and price move, it was quickly retraced this afternoon. This makes tomorrow’s price action extremely important. Holding above the breakout will suggest higher prices. Trading below will suggest today was a false breakout and the higher probability of rotation back through to test support.
The holidays are over and the Stock Indices started the year in a rotational pattern. However, a break of the current extremes could give a good indication of the next greater degree move. Today’s Briefing offers a probability assessment of a good rally, but that will depend on the breakout and the internals supporting that breakout. Alternatively, a break to the downside will increase the probability of a test of the October low.
The Stock Indices continued their move lower on weak breadth and increasing volume. This suggests the potential for another leg down to develop. The following two weeks will be low-volume weeks. Therefore, use caution as larger funds can skew the market. The Briefing outlines important support levels that, if broken, will confirm another leg lower has begun.
I have been discussing in the Briefings the higher probability the rally off the October low is countertrend and another leg lower is in the offing. As that countertrend move developed, I covered its analysis and projected the possible end at the 410 area in SPY. While there was always a lower probability of a continuation of the rally in a longer-term rotational pattern, Holding at 410 and then reversing suggested the analysis was correct. Today, important support levels were traded through. While the Market is oversold and I have to anticipate some type of pause to work off the oversold condition, it is still possible to see additional downside. Watch breadth on any lower low.
As discussed in many Briefings, it appears the Stock Indices have completed a countertrend rotation higher and are now in the process of developing another potential leg lower. Today, they reached important support and bounced off of it. If that support holds, it will suggest a developing rotational pattern. If broken, it will mean the possibility of testing the October 13 low. Expect a pause tomorrow, but support is now very important, especially if broken.
The employment numbers today gave the Market the opportunity to turn down from important resistance. It ignored that opportunity and clawed its way back up close near resistance. Trading much above the resistance levels will suggest the rally off the recent low is not countertrend and we are in a rotational pattern with higher upside resistance possible. Next week will be extremely important to determining the next intermediate timeframe move.
As anticipated in last night’s Briefing, the Stock Indices displayed a breadth divergence that resulted in a pause or rotation lower today. Important to the analysis is the fact they are all at extremely important resistance levels. If they trade much through resistance on strong internals, it will suggest the countertrend rotational pattern I have been watching is invalid. Trading below short-term support suggests that the analysis is still valid.