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.
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.
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.
Today’s trading in the Stock Indices was very interesting. Obviously, at the open traders felt the employment numbers were bullish. However, they soon turned bearish and all of the gains of the last two days were retraced. Important to this is they closed, once again, at multiple timeframe support levels. Should they break support next week, it could open the possibility of testing the June 17 lows. Alternatively, if today’s high is traded through, it opens up the possibility of testing intermediate resistance.
The balloon of hope the market had since the June 17 low had a hole punched in it today with the Fed Chairman’s comments. From a technical perspective and as I have been discussing in the Briefings, the rally was extremely weak from an internal basis. Market breadth was diverging and, more importantly, volume was declining each day. Today, the Indices traded through important intermediate-term support levels and closed at the lows of the day, suggesting the possibility of lower prices on Monday. If there is, watch for a divergence in breadth for a possible pause or countertrend rotation. The market was extremely oversold at the close today. While that does not preclude additional downside, it is good to watch for other signs of a pause.
The Stock Indices traded lower today. However, the pattern is a typical three-leg countertrend move. Additionally, volume was not significantly increased, suggesting it was not an impulsive move. Breadth was extremely weak, which allowed the Indices to continue lower throughout the day. The Briefing outlines very important support and resistance levels for Monday. This rally off the June low is simply not impulsive and seems to be tiring. If this is the beginning of a greater degree move lower, resistance levels should hold. If not, they will likely be broken early next week.
The Stock Indices have spent the last six trading days paused at or around extremely important resistance levels. While the pause has continued, the internals continue to deteriorate. While they can always strengthen to support another rally, that typically happens around a news event. The employment numbers today resulted in higher bond prices and a Stock Market that appeared to be unsure of whether value was higher or lower. The resolution to the current rotation will be very important for the next greater degree time and price move.
The Stock Indices surged this week. The trend is certainly up. While the trend of price must be respected, it is important to note the internals are not supporting price, at least at this time. The internals can strengthen and usually do around a news event. However, unless or until that happens, expect some type of pause or countertrend move to the current rally. The first part of next week will be extremely important. Either the rally will begin to draw in additional buyers, or the rally will stall. Volume and breadth for next week are critical to keeping the rally going.
The internals of the market are diverging from the rally we saw this week. That suggests the potential for some type of move lower to test and possibly trade through very important support. While it is always a higher probability for price to correct to the internals, there is a small probability of the internals correcting to price. That typically happens around a news event where the perception of value on the part of traders is changed due to the news. There is a Fed announcement next week that certainly can change the perception of value. Therefore, we have to be aware the market is very weak now but the Fed announcement could change that.
As discussed in last night’s Briefing, the Stock Indices are apparently in the process of completing a rotational pattern and may very well test the upper extreme of the rotation they have been in since the end of June. This makes the upper extreme very important. If they trade through this resistance, then they are transitioning into a greater degree of time, and price move higher. The market did reach a point of almost being overbought. However, they closed at their highs today, suggesting they want to trade higher on Monday. Volume still is not confirming the rally. It continues to decline, especially in the NASDAQ today. Until the rally can draw in additional buyers, I remain skeptical, but the rally is tradeable.