The S&P 500 has found a range to trade in and now it’s about which level gets taken out first. 1080 is strong gap support underneath current price while 1115 is strong resistance above. The bears were rocking this morning. A massive gap down was taking place. The futures were weak pre market but worsened still as the market approached the opening bell. The powerful gap down was underway and now it seemed the bears had the bulls where they wanted them. I don’t think many bulls would argue that point.
We gapped down 1.5% on the S&P 500 and that’s very unusual. Gap and run seemed likely and that’s just what we got. Then a funny thing happened along the way to annihilation. We reversed. The Nasdaq has strong support at a gap at 2190. Before we got there the bulls came in strong and the reversal was underway. Step by step the market fought back, led by what must lead, the technology stocks or the Nasdaq. The Nasdaq actually went green for a moment before closing lower by only one point. Everything was well off the intra-day lows. The late day reversal printed bullish short-term sticks.
As the day came to a close it was clear for all to see that hollow red candles were on the menu for all to see. Hollow red candles mean that a stock or an index finished down but off the morning gap down prints. It means that once the market gapped down it saw on balance buyers. Off a down trend and off a gap down, this means the buyers have caught up to the sellers. The size of today’s hollow candles was very impressive making this day even stronger than it seems for the bulls.
Hollow candles are not relevant if the pattern in place is lateral or the trend is up. It is only relevant if a short-term trend has been lower such as we had. This suggests that somewhat higher prices are in store in the very near term but remember, the bulls have nothing on their side worth anything until they can close the S&P 500 over 1115. If that takes place then the bears will know they’re trapped and thus higher prices still will be in order. For now, all that matters to establish a new more powerful trend is how the 1080/1115 range gets handled. Once wither side is truly taken out, the market should thrust in that direction.
One oscillator I like to spend my time studying is the MACD. I love the MACD on all time frames but it is especially useful on the daily chart as it often tells what the bigger picture is saying. As this market moved lower, one thing that was clear was that the MACD refused to turn lower. It did impulse higher when price was moving higher but didn’t fall when price declined. This tells me that the bulls were still in the game even though things looked bad early on today and over the past week. take a moment to study the daily charts and on the Dow, S&P 500 and Nasdaq and notice how the MACD moved up beautifully on the last rally but never fell a bit since we started coming down the past week or so. Nothing bearish at all. No guarantee as we all know but the MACD is suggesting that price should hold well in the coming days.
In an environment where things seem to be so bad you never want to argue with the message of the market. It doesn’t seem plausible to think we’re about to break down when you have the retail apparel sector breaking out. We have that chart for your viewing pleasure this evening. Look at that breakout. Would retail break out if the market was about to fall hard and break down? Sure, anything is possible but that’s not what one would normally see when a market is about to enter a bear phase once again. A strong candle at that which leaves little to no doubt about the intentions of that move higher through its trend line top. Many other leading sectors are holding well off their wedge bottoms and showing more and more life.
Again, not the action one sees when a market is about to enter a bear market. These wedges would start to break lower one by one if this market was truly topping out. News can always come out of left field to change the current scenario but bases purely on this type of wedge breakout action, it seems today’s market reversal makes a lot of sense.
Look folks, this is a very tough market with lots of back and forth chop. It makes things very emotional. I respect how difficult it is. Trust me when I say I get it. While we’re stuck in this 1080/1115 range, this get very tough as the whipsaw continues. Gap ups get sold and gap downs get bought. I still it is likely that the next move will be above 1115 but you won’t want to bet the house on that. There’s hope for the bulls for sure. There’s still hope for the bears, but I’m buying and not shorting, which tells you how I think things will ultimately work out. Stay patient.
Peace,
Jack
