A Fire Drill Completed
The
SPX
(
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PowerRating) closed at 818.37 on Thursday, and
then we had the comical CNBC fire drill on the economic number Friday morning.
They bring in Rich "The Hype Job" in Chicago and you would have
thought that the S&P futures were a moonshot with buyers lined up around the
block loving the number. Well, that lasted just one five-minute bar, as the SPX
hit its intraday high of 825.90 on the 9:30 a.m. ET bar and proceeded to trade
down after the opening reversal to an intraday low of 794.18 on the 1:45 p.m.
bar before a 1,2,3 buy pattern started to develop. Entry was on the 2:40 p.m.
bar above the 798.04 high. That run was up to 812 before the SPX backed off to
close at 800.58, -2.3% on the day. The Dow
(
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PowerRating) lost 2.5%, and the
Nasdaq was -2.2%. The July 24 low was 775.68, and the low close was
797.70.
There have been three
wide-range-bar down days with closes in the bottom of the range for the SPX on
the daily chart and the sixth down week in succession. With the 776 magnet
within sight of the Program Gang and the oversold condition, we will get
opportunities both long and short as volatility increases. Needless to say, the
major indices are at the low end of their various intermediate volatility bands.
Last week, the NYSE
volume averaged 21% above its normal average, with Friday the big day at 1.8
billion, a volume ratio of 14, with 1.5 billion down volume, which is by itself
more than the NYSE average volume. Breadth was -1579 with the three-day average
now at -1071. Those numbers are bad enough to have the reflex alert light on
today.
The ideal scenario would
be a big early down this morning taking out the 775.68 low, and then reversing
the low after the expected carnage. You’re right. That’s too perfect a scenario,
and it probably won’t happen that way. Markets are very rarely accommodating to
traders, or else everyone would be successful, and that is not the real world.
However, I still expect the SPX to follow the Dow and Nasdaq, breaking and
closing below the July 24 lows. In
my work, the strongest confluence is 15% below 776.
Looking at your weekly
charts for the indices, there is obviously nothing resembling a reversal bar
with the 10- and 30-week moving averages pointing south, so other than intraday
entries, there is no reason to get positive. For sequence traders, however, you
should be very excited, as the SPX is now about 17% below its 30-week EMA, as is
the Dow. Most decent reflexes come from the -15% to -20% zone. Today and Friday
are minor cycle days.
Have a good trading day.
Five-minute chart of
Friday’s SPX with 8-, 20-,
60- and 260-period
EMAs
Five-minute chart of
Friday’s NYSE TICKS