Summary: Which way did they go? – $SPX

Good morning. 

 

Well that heads and shoulders finally broke on most indexes.  This is the trouble with these patterns though.. the value line index which is an un-weighted broad market index did did not break yet.  What do I do about that?

 

For now I will note it and ignore it. The close was disappointing but pretty obvious from the weakening afternoon and the almost continuous slow grind up for the dollar.   It was a futures lead collapse so we need to watch the broader markets for confirmation.

 

 image

This is our Advance/Decline line chart we use in our trading room to monitor the markets.  The solid yellow horizontal line demarks the –2:1 advance decline value.  You can see the broad markets all bunched up there while the thinner more futures/hedge/arbitraged/leveraged markets plunged down into the –4:1 and below arena. 

 

This pricing action has put our breadth indicators into a divergence pattern (which makes senses since breadth is broad market) and we need to watch today for either the small markets to confess they overshot or the slower broad markets to catch up with their nimble little siblings.

 

Quote of the day:
There are three kinds of lies: lies, damned lies, and statistics. – Benjamin Disraeli

 

Chart

Score

 Day-1

Change

40 DPI

-4

-6

+2

52 WNH

-0

-6

+6

10 DHL

0

-6

+6

Total

-4

-18

+14

The breadth had been performing well all day on Wednesday with the bulls managing to hold the 1040 SPX area all day.  Afternoon Moody news telling us that things in Europe are touchy pulled out any defensible strength the bulls had and the markets slowly slid into a class four rapid washing out the closing hour.  The breadth charts however were slower to respond, having gathered some strength all morning long. 

 

By the close the breadth charts put in a –4 score which is still bearish but a +14 gain from Tuesday’s perfect bear score.   We need to watch the broader markets today for confirmation one way or another. 

 

Nasdaq put in the best breadth performance yesterday so if you are short and worried about a bounce I would watch the Nadsaq today and see if it remains strong and pulls the others along.

 

$SPX chart:

 

The selloff from 1130 has been pretty spectacular.  We are now over 9% from the 1130 pivot high and remain pretty true to that downward trend line.  We broke the $SPX head and shoulders pattern which technically measured now indicates an SPX.X price target around the the 888 area.

 

My next price target on the downside is 1031.  A break of that and then it is the 1000 area.  I have tried to make it easy for the bulls to put in a scoring day and moved the goal post down to 1049 (let’s say 1050) as a first step to reversing the trend.

 

On my Market RSI indicators, which I have not been publishing, we are in a very dangerous continuation pattern indicating we could just slide longer than we think.  One of those “Wow we have XX red bars in row that has never happened!” scenarios.  Technically the markets are oversold but seem comfortable oversold we see no jittery rebounds like buyers are afraid of missing something.

image

The lines are on the charts for the upside and I only have the one line downside now.. If we continue down at this rate we would hit that 1031 on Friday.

 

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