Financials Keep the Indices' Heads Above Water
Good day! The market managed to squeak by with small gains on Wednesday. The index futures established a third wave to the downside afterhours on Tuesday and into the early premarket action on Wednesday, but the pace of the selling was substantially more gradual than the moves that took place intraday. By 3:00 a.m. ET the buyers were already starting to return and the slowdown into the low helped them gain momentum when things turned around. By the time the opening bell rang, the indices had surpassed Tuesday's close.
Dow Jones Industrial Average
The bulls ran into some initial intraday trouble at around the same time as the 9:45 ET correction period. This was also when the 61.8% fibonacci retracement level was hitting from the previous day's selloff and the 15 minute 20 period moving average zone intraday in the indices. The combination was deadly and the market turned lower once again for a retest of previous lows on the 15 minute time frame.
The reaction to the support level was strong. It created a "V"-shaped bottom on the 5 and 15 minute charts. When this occurs, a trading range typically follows and it is difficult for the market to rally all the way back to the previous high and break it right away. Instead, the market typically has to work itself out over a longer period of time than the previous decline.
A change in momentum within the congestion will often help determine the direction of the breakout from the range, but it works the best if the change in momentum is near one end of the range or the other. On Wednesday, this change in momentum took place intraday, but also mid-range. A slower pullback created a bullish bias and the indices turned higher once again out of the 13:00 ET correction period, but this pivot was mid-range, so the indices still struggled when they retested the morning highs around 14:45 ET.
The momentum shift held, however, into afterhours trade and the index futures managed to work their way back to Tuesday's highs ahead of Thursday's opening bell. This creates that "V" pattern on the 15 minute time frame now as well, so we should see a longer congestion take place on that time frame now. The "V" bottom will make it difficult for the indices to penetrate and hold above Tuesday's highs without a slower pullback off the zone of those highs and then a push above them. Any slightly higher high before such an attempt is made will be beneficial to the bears since it will create a bull trap I call a 2TTM.