Not a lot has changed since Friday. Friday’s high at 4185 (also the weekly high) is the upside breakout reference for the S&P 500, and 4150 is still important downside support, as are all ’50 point references. The overnight low at 4140 will be the line in the sand today for a negative tone change.
I have already pointed out the put/call ratio flashing enough fear for a short-term bottom. While not at an extreme, the CNN Fear/Greed index supports the put/call ratio findings from an even broader perspective. With the Bitcoin froth worked off and fear rising, a lot of the giddy sentiment is out of the way.
Overnight inventory is mostly long, and while traders were able to take out Friday’s low and test the top of the single prints at 4140, they brought the market right back to the top half of Friday’s range, which is where the market will open. But since we are opening inside of Friday’s range, it is usually best to let the market prove itself and take a position later rather than earlier.
Looking under the hood, the sectors began correcting in early April, falling one by one beginning with the Russell 2000, then tech, etc. So the market has been in an ongoing correction for six weeks. The math is such that the S&P 500 does not reflect the magnitude of some of the underlying damage. All of this appears to be part of the 80-day cycle, which appears to have bottomed and means the market is ready to launch a new run.
The problem may be that with the larger cycles still peaking from above, this next run may be labored and may also peak early. That is what we need to be prepared to assess in the coming week. Already, some of the up days have below-average volume. So it is still a tough call at this point.
As always, stay tuned.
A.F. Thornton