Heavy distribution day knocked 4+% off the index.
Down volume outpaced up volume by the widest ratio since the March lows.
There seldom, if ever, is absolute certainty where markets are concerned. It is a game of probability that I play. The selloff today, the break of the lower boundary of what appeared to be a diagonal, and the close below the 848 pivot make it very probable that we have successfully broken to the downside of an ending diagonal
I am going to operate under the assumption that major wave A up has ended until market forces me to change my count
This is the 60-minute road map that has served me so well these past few days
I have made the chart a bit taller, and changed from candlestick to bars the make the picture clearer.
We can see clear break of the lower boundary of the diagonal (drawn in blue). Index rushed down to a prior peak point, which coincides with the lower boundary of a rising channel (drawn in thick Red) and stopped there. A logical spot to lighten short exposure if one is concerned. Short term trend has turned down (the lower lows and the high in between can be more clearly seen on the future charts below). It is very oversold on this frame, and it may bounce up. If it cannot make a higher high, it will further strengthens the current count.
In addition to that, I would like to see a daily MACD cross as well as a fast drop of daily Stochastics towards 50.
This is the 60-minute chart of the June futures, which I posted before market open this morning to give a heads on the weak future market activity
If major wave B has started, the question becomes if I can target an area for a likely end of major B. It is typical for a B wave to retrace 50% of its preceding wave A. Traditional TA gives a break from a wedge (that’s what a diagonal is) a target around the base of the wedge. The two happen to coincide around the 770-780 area.
This is all theoretical. Market does what market does without any regards for theory and technical projections. I use the theory and past studies to establish a frame of reference, and then monitor the activity as it unfolds to make adjustments. Sometimes, that adjustment may mean abandoning the original plan and changing the course of action.
Volatility increased by 15%! Can you imagine what it did to put premiums? Coincidentally, BKX dropped by 15%?!
The overall trend of VIX is still down. If VIX rises further, it will give more credence to the view that the rally from March lows has ended.
S&P has a good habit of filling its gaps. Let’s do a gap study
I use blue for gaps down, and the pinkish orange for gaps up. Interestingly, the overall gap layout fits well with 50% retracement and the base of the diagonal we just talked about.
It was a start for the bears. Index is oversold short term and a bounce may be near. That bounce will tell us more about how strong the bears are.
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In the morning post, I talked about an area between a rising trend line and the neckline of a prior H&S for a bounce
It actually did work for an hour or so. Between 08:30 am and 09:30, it gave away enough time to anyone interested in shorting the living daylight out of the index.
The bounce there was pathetic. It was more like price was hanging for dear life – indicating selling pressure.
I have identified that area on the above chart.
It is a game we play. The objective is to lose little on losing hands, and make good on winning hands.
Continuous study of the market action, past, and present, as well as practice sharpens our senses to developing situations. It is then up to us to act.
As I am writing this, June futures are hitting the underside of the broken lower boundary of the diagonal as you can see from the chart above. A 50% bounce will take it to the neighbourhood of the 848 pivot, let’s see if it can make there.
Short term trend is down. Mid-term trend is up. Long term trend is down.
resistance is 850 area.
Support comes around 825 (an area of previous tight actions), 815 (top of a gap down on March 30), and 789
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