Stock market retraces to key support levels

Closing at natural support does not equate to closing above resistance

Stock index, chart, technical analysis Stock index, chart, technical analysis

Was it Moody’s post-close downgrades… hanging over the market’s head all day, that caused its session-long decline? Probably not, since there hasn’t been much of a relief rally since then. And when the market ignores unfinished business above, usually it is being overwhelmed by something substantial.

Pattern points… (Setups and technicals)

Thursday’s drop was a 38.2% retracement of the rally from June 4’s trend low. It was a 61.8% retracement of the leg from June 12’s last relative low. Either is natural support. And neither is represents a trend change.

Sellers throughout the day broke under relevant support levels too late to be considered strong hands. Obviously that doesn’t impact productivity, but it should produce as steep of a recovery.

If there is a recovery.

Closing at natural support does not equate to closing above resistance. Momentum has not reversed up. Extending the current drop instead should be at an accelerated pace, and be more sizable than Thursday’s leg.

3-minute RSI ignored three consecutive positive divergences Thursday, extending down without producing any significant bounce. This can mean the market is in touch with much bigger selling pressure coming down the pipeline.

What’s Next… (Outlook and opportunities)

Thursday’s low tested “lower prior highs,” and held. No meaningful intraday bounce refueled the drop. Perhaps the weekend’s impending illiquidity accelerated or encouraged selling that would have happened later or not at all. If that’s not enough to flush out all available selling pressure, then an even uglier day may lie ahead Friday.

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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