Hurricanes and power outages are over (thank goodness!), the President has introduced a new jobs program and the Fed hints at more stimulus … but the market continues its slide. Let’s take a look:
- Sellers Still Present
I’ve posted weekly and daily charts of the S&Ps. We can see on the weekly chart that the market broke through its uptrend line (green line) from the March 2009 low, and it did so decisively. This is clearly not constructive for bulls.
On the daily chart, the market fell hard from the 1230 level with a lot of volume generated on the decline. While certainly there was some buying in that high volume into the 1071 low, it did not continue on the two subsequent rallies into mid and the end of August. You can see the volumes at A and B.
While Helen, Asta and I were burning candles in the aftermath of Hurricane Irene, the market upthrusted the weak rally to A. That upthrust came right where it would be expected – as a backup to the 1230 resistance level. It was then tested on Thursday and Friday saw increased spread and volume to the downside – supply.
From here I would anticipate a push down to the 1071 level. Will that level hold as support? No one knows the answer to that, of course. We will watch how the market approaches this level and we will have a good idea in advance whether or not it will hold. (For a very useful exercise, go back to the end of July/early August and see how the market approached the 1230 low. What can you see? You can post what you learn in the comments section.)
My thinking now is that holding here is less likely. This market recently broke sharply from a large trading range and approached the underside of that range last week showing no sustained buying power. The rally off the 1071 low has been corrective after new momentum has come into the downside. The weekly chart shows the impulse or momentum down followed by the corrective rally well. There is also a sizable cause on the point & figure chart (not shown).
We will see, though, how the market approaches and what it does if and when it gets to 1071. It could hold here or a little higher and create a trading range. If it does break underneath 1071, the next logical level is around the 975 – 1000 level.
This was the low area made after the flash crash. It is also the ½-way point between the March 2009 low and the May 2011 high. This area is highlighted on the weekly chart (blue rectangle).
Leave a Reply