It’s About Time for a Bounce

Although we disagree with the idea that “the tape tells all,” it is important for all traders to stay on top of key technical happenings on the charts. Below is our current “executive summary” take on the State of the Tape.

Our Current Take

Stocks are lower this morning – although a rebound attempt appears to be underway at the present time. However, with the market now down approximately 5% from the top and near important technical areas, a bounce is to be expected. We will be watching the internals during any rebound try in order to gauge the momentum. If the bounce is not accompanied by some “oomph,” selling strength would be the appropriate play.

We would consider being short-term buyers at: A close above 1320 area on the S&P 500

We would consider being short-term sellers at: A close below 1300 on the S&P 500

Trend and Momentum Indicators

Short-Term Trend: The short-term trend remains negative this morning. And unless the bulls can recapture the 1300 level quickly, it appears that this would become a new resistance zone.

Intermediate-Term Trend: The intermediate-term trend continues to weaken. However at this stage, the bulls still deserve the benefit of any doubt from a longer-term perspective.

Market Internals: Both of our TBC models remain negative. As a reminder, stocks have lost ground a a greater than -20% rate when both models are on sell signals.

  • TBC = Trend-and-Breadth-Confirm Model

Market Momentum: Momentum has held up “ok” so far but continues to wilt in the face of the current selling.

Support/Resistance Zones for S&P 500:

  • Current Support: 1280 – 1300
  • Current Resistance: 1320ish

Early Warning Indicators

Overbought/Oversold Condition: The market remains oversold from both a short- and intermediate-term basis and is now set up for a counter-trend rebound.

Investor Sentiment: The sentiment indicators continue to tell us little. However, given the extend of the current corrective phase, we would expect to see some negativity creep in soon.

Chart Watch

Below are snapshots of the two main charts we watch closely each day from a technical perspective. The indicators we display on the charts below include: 50 day weighted ma (purple), 18 day weithged ma (cyan), 10 day weighted ma offset by 2 days (orange), 4 day weighted ma offset 2 periods (dashed blue) and stochastic %K using 14 and %D.