Today we saw further downside consolidation, as we expected. I noted last night that more consolidation was likely and that if the market did start to sell off today, it could push down to the 1400 level, then the 1395 level. It went to a low 1392 in a small selling climax before it began to firm up in the 1395 area.
Today brought out an increase in volume. You can see it on the daily chart, and especially on the intraday Weis Wave. I posted a 45,000 Tick Chart along with the daily tonight. You can see the significant increase in down wave volume that developed over the last two days (highlighted by the red arrow). On this larger wave chart, we are seeing supply starting to come into the market.
This supply now needs to be confirmed by a lack of demand. That will be seen best if the market makes a lower high intraday. One logical place for it to do so would be in the 1406 to 1410 area highlighted by the blue line on the 45 K Tick Chart. Should demand stall on the next up wave and be unable to mount a rally to new highs above 1419.75, it will pave the way for sellers to push the market down to and possibly below the last swing low (1380.50).
We are now at Wednesday with two more trading days left in the week. It is still early, but if we end up closing the week on Friday at or below today’s close (1400.25) we will be setting the stage for a larger reaction. While we don’t know if that will happen, we can identify the scenario that can bring that about, as we have done here.
Obviously, if the market can rally and push above 1410, hold that level and then drive up through 1419.75, we will know that strength has returned to the market and buyers have stripped sellers of any edge that they have been working to establish.
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