Pre-Market Outlook – Update 5/11/2021

The NASDAQ 100 has managed to fill its gap at this writing, which is encouraging. But the index saw considerably more damage than the S&P 500 and currently rests on the top of today’s daily candle at its 50-day line. The S&P 500 has been weaker so far, has not filled its gap, and sits just below its 21-day line. 

On a positive note, the S&P 500 is holding this morning’s low and the swing lows from April that congregate around 4115 (on the cash index) and form the bottom of our widened balance area. We would expect buyers at 4115 – but will it be enough to keep the current trend intact? If we can keep the candle spike into this morning’s low, we can also hold the trendline connecting the March 4th and 25th lows. 

Another positive force is the Weekly Expected Move low around 4178. While it has been materially breached this morning, market makers have an incentive to push prices back to or above that level before Friday’s weekly options expiration.

The 4150 level, then, is the moment of truth. If the market continues lower this afternoon and closes below 4115, then we have confirmation of the 18-month cycle peak, a trendline break, and we break the recent pattern of higher highs and lows. We would then definitively shift gears to shorting rallies.

There is another possibility. The market could hold here and try to resume the rally. That would put yesterday and this morning’s sell-off as news-driven but severe liquidation breaks centered around the oil pipeline cyber attack. The considerable damage in the NASDAQ 100 (trading below its 50-day SMA) would suggest that the intermediate cycle peak we have been expecting is at hand. Either way, we should know more by the close.

Before the deterioration yesterday, many positive charts reflected companies benefitting from the normalization of travel and leisure and infrastructure spending. The prices were moving out of basing patterns, so the sudden decline undoubtedly changed the tone. It only takes a match to light the fire, forcing market participants to take a sobering look at the totality of our current economic and inflation circumstances.

I will update you after the close.

A.F. Thornton