The Weekend Review of the Markets: Breach of Major Support

Happy Weekend, traders.

The S&P 500 looks about as bad as it looks. It looks like we had a head & shoulders pattern of distribution, then with the FOMC we look to have lost the neckline, retested it from beneath with this recent rally, and have so far rejected that somewhat harshly, and even now closed under the important 200-day SMA:


Many things are possible here. It is always possible that this is a low, and if we rally powerfully from here, finding strong support at this important moving average, I will cover and see how things go. I won’t fully trust the bulls until they can get us a close back up in the gap we just tried and failed to close, so a close above 4390 or so. If this is a low, we do have a relatively high VIX, and we have had a volume spike on the /ES mini futures contracts. We also have plenty of folks looking for a crash, too.

These can all be compatible with lows, but, they don’t always coincide exactly with lows; they can be near lows in terms of time. Also, even though we’ve seen significant volume on the /ES mini futures contracts, there can always be even more volume in the coming days, and with the VIX, we haven’t seen an intraday “needle” that we usually like to see. Rather, it’s been high but has been closing at its highs. So it may have more to go. And finally, though I’m seeing plenty of chatter about a “crash,” the put hatred here remains intense, with the CBOE equity-only put-to-call ratio coming in at only 0.76 on Friday having never really spiked throughout this decline. If people are chirping about a crash but are not positioned for a crash, then it’s all talk and no walk. If we rally, I’ll listen. But if we don’t, let’s try to build a picture of what might unfold in the coming weeks and months.

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So, that’s a roadmap if the market goes “to hell and a handbasket here.” If the bulls can start making us go up again, we’re at local lows, so we have some good places to try to place stops and I’ll try to join them. But so far, at least since late July, the bears have been able to produce some big sells here and I want to see those puts come in thick as flies to prove we’re closer to a major low.

I hope everyone has a lovely weekend. I look forward to seeing you next week.

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