Thus far, yesterday has all the characteristics of a liquidation break, one we were expecting (today is the 15th – the dead middle of the month). Liquidation breaks shake out the weak hands in the market, making it possible to achieve more progress. Of course, we are not expecting too much more, as the larger cycles will top soon.

The potential for strength today is underscored by short-term traders likely still short from yesterday’s operations. Assume that any price action above the overnight highs (4145.25 for the S&P 500 and 13,945 for the NASDAQ 100) can be a “go with” initiative situation. 

As always, monitor for continuation and look for contextual support from strong internals (up/down volume, advance/decline lines, and up/down ticks). I will also trade from the framework that pullbacks into yesterday’s regular session range are more likely buying opportunities than weakness. I don’t think that such pullbacks would rotate all the way back to yesterday’s lows.

While that may be my opinion going in today. any trading below yesterday’s low has potential to change the tone. Given the overbought nature of the larger picture, and the cycles that often dip mid-month, more selling is possible – so don’t anticipate a trade. Wait for buy signals and triggers to confirm the scenario before jumping in on the long side. 

Given a large liquidation break that was bought back up overnight, selling below yesterday’s lows is less likely, but cannot be eliminated as a possibility. Value was overlapping to higher yesterday, and selling was not uniform across all sectors. Value is more important than price – ALWAYS. Profits favor the prepared.

A.F. Thornton