Markets – Macro – Technicals

Break of support, now what?

It’s been a roller coaster week and yesterday’s rip higher proved to be a major trap for buyers. We were fortunately long it and then flipped short on the 50% Fib retrace per our $SPX roadmap we had outlined in the member feed for a move into the $SPX 1998/1999 area and reconnect of major daily moving averages:

The rally was simply not confirmed by the indicators we follow. One in particular stood out, the high low ratio barely even moved during that massive rally creation the widest divergence yet:

USHL

The analog structure we had been tracking called for a breaking of lows today and we had that in our view in this morning’s member write-up:

Structure

So we indeed got the break. The question of course is now what? As it turns out this market is now at a very critical juncture. The analog structure gives us an upcoming buy signal here with another down move possible tomorrow with a potential rally into quarter end. Here’s the updated chart:

INDU

With a $NYMO reading of -85 that certainly could make a lot of sense. However there are two charts to be aware of as well.

Firstly the $IWM has broken key support:

IWM weekly

Secondly the $SPX is now sitting at key trend line support. In the past this has been a reliable buy signal, yet it should be clear what happens to prices if this long time trend line were to break:

SPX weekly

So bottom-line we are getting conflicting signals here borne out of a market that is dealing with seasonality, analogs and one that is highly disconnected from long term moving averages. These are now potentially much more uncertain times ahead for investors as opposed to the auto pilot market we have been on. Recent volatility in currencies, commodities and interest rates may simply have foreshadowed the now increased volatility in stocks. And looking at the charts above, a lot more may be heading our way.

As for us we have a very specific trade strategy in play for dealing with this uncertain set-up. For more information about our trade philosophy please visit the About and Trading Process pages.

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