This week was very interesting in terms of price development in the Stock Indices. The Fed Chairman came out with market moving news on Wednesday and there is anticipated news coming out of the G-20 meeting tomorrow. Both of those will likely move prices.
The current situation with the Indices is price action was strong this week, suggesting the countertrend move lower is complete. The problem is the internal structure of the rally is weak and potentially getting weaker. New lows are increasing once again. Market breadth is diverging from price and volume is extremely low. All of this suggests the greater probability is for price to once again correct to the internal structure. However, there is always a smaller percentage of time when the internals will correct to support price. That typically will happen around a news event, where the perception of value has changed on the part of market participants. Therefore, Saturday’s announcement from the G-20 can change everything.
If the internals do not strengthen to support price, expect some type of move back down. If the internals strengthen on Monday with any move higher, the probabilities have increased that a bottom is in and we are off to test and likely take out the all-time highs.
DAILY BRIEFING 181130 from Joe Mertes on Vimeo.
The preponderance of evidence is now leaning toward another leg to the downside. From a purely technical aspect, the rally off the lows is not becoming impulsive and suggests it is countertrend to the greater degree timeframe rotation lower from the all-time highs. Volume off the low is declining as price tries to move higher. There simply is not enough buying pressure to drive the Markets much higher. If this does not change, we could be in for another leg lower.
Next week is a holiday week and volume will be very low. Therefore, price development can be skewed.
Pundits are proclaiming this to be a buying opportunity, and it very well could be. However, right now the information coming from the market is to be cautious.
DAILY BRIEFING 181116 from Joe Mertes on Vimeo.
In Wednesday’s Briefing, I explained how it appeared the Stock Indices were strengthening slightly on the rally off the recent lows. However, I also stated I was concerned over the rally because of the inter-market divergences that existed. Not all of the Indices looked as if they were ready to rally significantly. The selloff that occurred in today’s trading could have a significant impact on the analysis for the coming week.
As you will see in the Briefing, there are indications the rally off the lows is becoming countertrend to the downtrend we just experienced. If this is the case, then there is another leg down that may be in the process of developing. This leads me to believe that what happens the first part of next week will increase the probability of one event occurring over another and lead to a large move. The key reference area to watch is Thursday’s high. If that is traded through and the internals are strengthening, I fully expect the low is in. However, if Thursday’s high holds on any rally off of today’s low or even a slightly lower low on Monday, then the probabilities will increase we are headed down.
It should be a very interesting week ahead of us.
DAILY BRIEFING 181109 from Joe Mertes on Vimeo.
The Stock Indices have completed what appears to be a longer term three step countertrend rotation lower. However, the rally off the recent lows is not as impressive as I would expect. This leads to a possibility the move lower is not yet complete. Adding to the problem is the US election on Tuesday. That certainly is an event that can change the perception of value on behalf of traders and investors. Therefore, I would use caution the first part of the week.
Shorter term, the Indices have been in a rotation for the last three days of trading. Breaking out of that rotation will likely give us more information as to the direction of the next greater degree move. Market internals are not signaling much to help either. However, volume on the move off the low has been declining, suggesting it could be countertrend to the thrust lower.
In summary, there is simply not enough information from the market in the short term to determine the direction of the next greater degree move. That should be cleared up the first part of the week.
Untitled from Joe Mertes on Vimeo.
Small divergences in the downtrend are beginning to develop. Also, I have learned to respect buying tails that occurred in today’s trading. While none of this gives a high probability of the move lower being complete, they are small clues that some form of bottom may be approached in the next few days. Additionally, if this is a countertrend rotation in a larger degree of time and price, it would project complete in or around the 259.00 area in the SPY.
The small divergences suggest some strengthening. This along with some intermarket divergences and an oversold market would project some type of rally the first of the week. This is assuming there is no negative news prior to Monday’s open. If there is, those divergences will be eliminated very quickly. How any rally develops will be important in determining if it is countertrend to the move off the highs or if it is the beginning of a trend change.
Going into the beginning of next week, I have to be leaning more to the downside of the market but with much caution. If and when a bottom is found, it should open a good buying opportunity.
DAILY BRIEFING 181026 from Joe Mertes on Vimeo.
Wednesday’s Briefing was very difficult to send out. With the price explosion we had, it seemed obvious the Indices were headed back to new highs. However, the only internal component that confirmed the price move was Breadth. Everything else was suggesting the rally was very weak and would likely be retraced. Plus, the market reached a point of being more overbought than I have seen. All of my analysis suggested the move off of last week’s low is countertrend to the move down from the highs and there is more work to the downside left to accomplish.
It does appear we will see those lows tested or taken out before any significant rally occurs. Analyzing the internal structure of any additional move lower will be very important. Once a bottom is reached, it will likely open up a tremendous buying opportunity. It will be important to watch for inter-market divergences, if and when the lows are tested. The Russell and Dow Industrials are testing the lows now.
DAILY BRIEFING 181019 from Joe Mertes on Vimeo.
As per the intra-week Briefing on Wednesday, the countertrend move occurred beginning on Thursday and into Friday’s trading. There are two intermediate term scenarios potentially playing out. The first is: the move off of the highs is not complete. So far, that is the indication. The move over the last two days has all of the characteristics of a countertrend move. Therefore, I have to expect another leg lower. We may see a high above today’s high, but if the internals do not strengthen significantly, it will likely be retraced and another leg down will begin.
The second is: the move off of the highs is an intermediate term countertrend move and it is complete. As of today’s trading, I believe this is a lower probability. There are no certainties in trading, therefore I have to consider all possibilities. If this is the case, you will see price accelerate above Friday’s high. Volume and breadth will increase significantly. Right now, the internals are suggesting the move off of today’s low is corrective to the impulsive move lower. But, that can change.
Short term, I expect the potential for a high on Monday above today’s high on weak internals. If that occurs and we see today’s highs traded through to the downside, it will suggest the next leg lower has started. Holding above today’s high will suggest the alternative. Breaking today’s low, suggests another leg lower has begun
Watch the Russell. It can give an early indication of the beginning of another leg down. It signaled the current move off of the highs. If it breaks today’s low and the other Indices are lingering just above today’s high, it will suggest the other Indices may follow.
DAILY BRIEFING 181012 from Joe Mertes on Vimeo.
In the September 29 Briefing I warned of the extreme divergence between price and structure of the Stock Indices. There were glaring signals of an impending fall. Since, then I outlined last Thursday to expect a counter trend rotation to work off an extreme oversold condition. That is exactly what occurred between Thursday and yesterday, allowing for another leg to the downside today.
My analysis showed the higher probability of at least one more leg down, due to the way the countertrend move developed. However, I did not expect the extent of the move we saw today. It was very impulsive and suggests we will see additional downside tomorrow. Because markets run and pause in all degrees of time, I have to expect we are reaching another possible pause phase. Once again, the Indices are extremely oversold. The first hour of tomorrow’s trading will be very important.
The Briefing outlines what to look for, if at least a short term bottom is reached.
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DAILY BRIEFING 181010 from Joe Mertes on Vimeo.
As discussed in last Friday’s Briefing and the inter-week updates, the Stock Indices have fulfilled technical levels for a decline. They ended the week extremely oversold, which suggests some type of pause or rotation back up. The move off of today’s low was signaled by a divergence in Market Breadth. It was strengthening as price was still declining. The question now is whether the current rotation down is complete and we will see a move back up to test the highs, or if we will see a pause to work off the oversold condition before another leg down.
How any pause or countertrend move develops will be very important. I would speculate, if there is another leg down, it could be a very impulsive move. However, the probabilities are about equal that this move lower is complete and we could see rotation back up. Monday’s Briefing will be very important.
DAILY BRIEFING 181005 from Joe Mertes on Vimeo.
Use caution on any long positions you currently hold.
After today’s trading, the market internals continued to deteriorate, and as you will see in the Briefing, are sending flashing warning signals. Short positions should be considered as support levels are broken. Unless the internals correct to support price levels, the risk is greater to the downside for some type of correction.
It should be a very interesting close to the trading week over the next two days.
DAILY BRIEFING 181003 from Joe Mertes on Vimeo.