The breadth charts are telling us we are still mired in weakness and a little trendless. While yesterday’s candle was a bearish reversal it was unable to put in a new low and in fact put in a higher high and higher low. This mornings gap down will reverse that putting in a lower low.
The breadth charts are just in the neutral column except for the slower 40 DMA % index which is fully bearish looks like it needs another week to turn positive. The breadth data is starting to build again and we are beginning to put in lower lows with stronger breadth which is an indication of building a bottom. Where that bottom is we don’t yet know as the market is still probing and the 40 DMA tells us we still need some more time.
Our SPX chart is looking weak and with this mornings gap down it looks like we might finally close that SPX gap at 1110 this morning. We will look for a bounce from the open to see if we can get a little upside kick. A break of 1110 puts 1093 in play which would be a retest of what I am marking as the bottom of the current low of this correction. Below that is 1065 the flash crash low.
If we do bounce from 1110 look to see if we can rally to 1124. Volatility is huge so use lighter loads as you will need wider stops. To have traded ES short for the trend down day and stay to have stayed in all day you would have needed 10 point trailing stops!
Bulls Plan: Use 1110 as an excuse to rally then close above 1124 or plan B give the ball to the bears and let this market run down to 1093 put in a nice double bottom and begin the run up.
Bears Plan: Stomp on any strength and drive the bulls back below 1110 with at close below that line being very bearish.
My best guess.. We bounce a little in the am and then sell down break lower for a scare and then rally back. This is OPEX week so anything could happen.. including a run to new market highs..
