Is stock sell off the start of another leg down?

Last Wednesday? What was last Wednesday?… Oh, right. The Dow rallied 490 points. The week-long distribution since then has been discussed here daily. Does Thursday’s steep drop mean momentum is reversing down?

Pattern points… (Setups and technicals)

Thursday’s very interesting opportunity for a squeeze was fulfilled after blipping-down to fulfill the afternoon’s 1230.00 bias-down target. Its likely objective at 1240.00 was met quickly. And 1240.00 was likely to hold as resistance through the close.

10+ points is a lot of energy to expend just to test resistance, resistance that is likely to hold, with little time remaining before the close. Catching the bottom is overshadowed by not catching the obvious vulnerability to reacting down sharply.

And the market did react down sharply, plunging 15 points down through all prior lows to 1225.00. A bounce to 1231.00 through the close was just a miniaturized version of the prior bounce — expending unavailable energy just to probe resistance. A “hold-short through the close” was compelling.

Last Wednesday’s 1220.75-1223.50 opening range should be retested at some stage. It should be tested soon so long as 1233.00 holds as resistance. Above 1233.00 would allow another corrective bounce, first.

What’s Next… (Outlook and opportunities)

The morning’s comment about the potential trend change can now be confirmed. There was no reason to revisit the 1240.00 area again, making its eventual break likely. It has been broken. A second consecutive close below 1240.00 would confirm, and need not be a lower low. It also may rally sharply intraday. Only the close is relevant to the signal.

Look for at least one update overnight or ahead of the Morning Market Tour… My thoughts on the day’s econ calendar are linked here.

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog http://IfThenSignals.com.

About the Author
Rod David

Rod David develops analytical techniques that are designed to efficiently identify targets and turning points for any liquid stock or market in any time frame. He primarily analyzes S&Ps, generating several round-turn candidates daily. Rod publishes "Trading Plan" and more each session at the blog http://IfThenSignals.com.

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