There is something for both the bulls and bears this morning. The bears can point to the last two days closing on the lows, forming a true pivot lower when yesterday closed below Monday’s low. And of course, a pullback is not surprising considering the market had been one-time-framing higher for nine sessions.
As well, both the NASDAQ 100 and the S&P 500 bumped up against their Weekly Expected Move highs on Monday and Tuesday, and that does have a way of limiting further gains for the week. But we can certainly ride the wave back up there.
The bulls can point to a new high in the NYSE advance/decline line, confirming the rally underway. Also, even in a tight bull climb like we just experienced, traders will almost always buy the first pullback, even if it eventually stalls at Monday’s high around 4590. Value was virtually unchanged yesterday; another vote for the bulls. The overnight profile has a 45-degree angle, which means traders are likely short in the hole overnight, and the low at 4545 starts as secure.
If the market can take out the overnight high (also yesterday’s halfback) at 4562.50 this morning, we can move back toward the top of the range and all-time-high at 4590. It won’t be a smooth ride, as we could stumble at yesterday’s POC around 4565. Then, we would have to take out yesterday’s high at 4576.75. Watch the market’s reaction at each of these levels and monitor for continuation.
Keeping in mind that overnight inventory is 100% long, there could be profit-taking and a fade at the open. If not, that is good, bullish M.G.I. If so, the overnight low at 4545 is the first target, then yesterday’s low at 4544. From there, you have Monday’s low at 4529 with a little noise in some VPOCs above that around 4533.
The 20-day future line of demarcation sits at 4522 or so, a normal target for the first pullback in a normal market rally. But there has been nothing normal about these markets. Otherwise, the FLD would be my target if the 5-day line at 4547 breaks for a few hourly candles.
The 5-day line is important. Apart from support and resistance, many algos are tuned to the 5-day line – so there will be some buying and support at that level. If we break it for a few hours, that opens the trap door to lower prices. When important moving averages are in the neighborhood, they can override the other levels. Keep that concept in your narrative.
From a macro perspective, the market (using our S&P 500 Futures Proxy, or even the SPY, is trying to hold a breakout over the September all-time highs. Failing to do so introduces the possibility of a double top major trend reversal. Last night, our Globex cousins failed to push prices to yesterday’s low, much less to new lows, which is a bullish carry forward this morning. Yesterday’s low at 4544 on the futures contract is the threshold that separates a new ATH from the old one. So I would use 4544 as your line in the sand if you are long. Closing some hourly candles below that level calls the breakout into question.
We have the Fed meeting next week, and the economic reports this morning continue to telegraph weakness, so this may be your last “free” day to trade before the influence of the Fed meeting starts to dominate.
A.F. Thornton