Stock market bears behind recent selling are tested

Are weak hands behind market drop?

The origin of last Monday’s selling… had indicated its sponsorship was weak hands. Despite extending down so far, and regardless for how long, its high would require a retest. Its attraction has now been neutralized…

Pattern points… (Setups and technicals)

Last Monday’s selling from 1408.00 was dubious for several reasons, as were other sell-offs along the way to Friday’s 1380.50 low. Weak-handed trending attempts are likely to be retraced. This one has been, and its attraction above is neutralized.

Also, last Monday afternoon’s bias-up environment was exited high enough to consider its signal sponsored by strong hands. Its 1410.25 target remained outstanding. Its attraction above is neutralized, too.

Now the question is whether last week’s high will hold this retest. If so, we should see signs fairly quickly. Already, this upleg’s origin is oversold RSIs, its second session gapped up, and its slope is steep — all characteristics of a correction.

But new highs are not a sell signal. The rally exploited every one of Monday afternoon’s failed reversal opportunities. Closing above the morning’s high in Monday’s uptrending session means that buyers gained traction. And the test of 1410.25 high already extended another point into the 1411.25 cash session closing equivalent, and 5 points higher into the 1415.00 futures close.

What’s Next… (Outlook and opportunities)

Trying to shorting this upleg could be suicidal. It could remain hyperbolic through Tuesday’s open, testing 1422.00 or even 1427.50. Typically, the first reaction down is a warning that retraces for a better short-entry. Meanwhile, an immediate reaction down into Tuesday’s open could still recover from 1406.00-1408.00.

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.

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

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