Consolidation At Support Suggests Breakdown Favoured

The back and forth in the markets continued as yesterday’s gains were undone by today’s higher volume selling.

The concern with today’s action is that the consolidation in the S&P has the look of a bearish continuation wedge. And given the potential for a measured move, it opens up the possibility for a push down to 1,650s. A weak ‘buy’ signal in the MACD could trap more bulls.

The Nasdaq accelerated its relative performance down (against the S&P). Today’s 2%+ loss pushed prices back to last Wednesday’s trading range. Additional losses will push into the spike low.  The ‘Golden Cross’ was also undone with a return of the 50-day MA below the 200-day MA.

The Russell 2000 experienced losses as part of a ‘bear flag’, but the losses were lighter than other indices – which improved its relative performance.  The ‘bear flag’ remains contained by former support turned resistance. Together, lower prices look favoured in the short term, but a return above wedge support would confirm a ‘bull trap’. Note the ‘Death Cross’ between the 50-day and 200-day MA; confirmation of bearish change in long term trend.

The Dow was another index to flash a ‘bear flag’.

For tomorrow, watch for confirmation breakdown’s from the bearish wedge / flags. Markets could accelerate quickly lower if there are gap downs off the open. Long term buyers should be getting ready with another tranche of funds to take advantage of a new swing low (should it occur).