S&Ps did much more than reject Wednesday’s new high
Coverage for January 26
Tech back below the deck
NDX had already retraced so much of January's gain earlier in the week, its decline could no longer be considered only a correction. That didn't mean Wednesday's corrective bounce couldn't extend a little higher, but it didn't get very far for very long before reversing back down to the week's lows. NDX also filled the gap back to Tuesday's close, so any lower close Friday would signal a new downleg underway.
The same, only more so
Wednesday's rally wasn't expected to be sustained because of three factors that didn't confirm it:
1) volume's pace declined
2) sellers were more productive than buyers
3) the afternoon's gains originated in a no-bias environment.
Thursday's drop was confirmed by each of these factors - it worsened them:
1) Volume surged
2) sellers were still more productive, and
3) the morning and afternoon both signaled bias-down.
The nail in the coffin
Wednesday's new high was more than just that; it was also a breakout above prior highs. Thursday's retracement was more than just that; it was also a rejection of Wednesday's new high. Unless December and January's prior highs are recovered without delay, momentum should tilt quickly and substantially in favor of sellers.
Friday’s Trading PlanThe reversal's timing and its severity weren't required to develop so soon after Wednesday's new high. That certainly raises a caution flag as to whether Thursday's drop wasn't just a momentary knee-jerk reaction. Especially since futures premiums have shrunk so much so quickly, reflecting rising pessimism, which can be bullish from a contrarian perspective. And especially since Monday's prior low has yet to break as support on a closing basis. But Thursday's immediate rejection of Wednesday's new high close means momentum meanwhile favors sellers. And this being a Friday, exiting the opening sequence at new relative lows could mean ending the week with a record-sized decline.
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