Gap down in stocks reverses, sets up technicals

Early to bed, early to rise… Sunday night’s gap down was reversed well into positive territory Monday morning. The recovery was rejected entirely, but not sustainably. The benefit of the doubt is on strong sellers to undermine the rally, but weak buyers are doing that pretty well themselves.

Pattern points… (Setups and technicals)

Exiting Monday morning’s bias environment back under 1313.00-1314.00 signaled that the rally was done. Had strong hands sponsored Monday’s opening rally, then they would have held the pullback limit. But 1311.25 didn’t break lower until the morning’s bias environment was already lapsing. Strong hands would have broken lower earlier.

Although the rally had ended, a decline had not necessarily begun.

Strong hands could have regained control in the afternoon. Sellers could have extended under Friday’s test of ~1306.00 support. Buyers could have recovered last week’s ~1311.00 highs. The only effort that was made was made by buyers, and that effort was not maintained through the close. In fact, a 61.8% retracement of the morning’s drop peaked upon testing the 1313.00-1314.00 as resistance.

Without sellers yet gaining traction through the close, intraday rally attempts remain possible. There is no unfinished business above or requirement to extend any higher. So, any probe of fresh highs must be rejected through a relevant timing window to avoid gaining traction.

here is unfnished business below at Monday’s 1305.00 oversold RSIs. Closing any lower should seal a top, or at least launch a pullback targeting 1285.00. Otherwise, there is potential to probe 3 points above Monday’s 1318.25 to 1321.25.

What’s Next… (Outlook and opportunities)

Tuesday’s close, or else Wednesday’s open, should offer a clear indication of whether the rally is topping and preparing to reverse down, or if it is extending to the next higher objective.

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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