Given the negative divergences in momentum, volume, breadth, and market internals – along with the “arc” trendline distribution pattern – stocks had extremely high odds of breaking lower into a steep retracement.
At the moment, that’s precisely what they’ve done this week, right on schedule (or perhaps a little overdue).
Let’s update our Weekly Perspective charts of the Dow Jones, S&P 500, and NASDAQ to note what’s happened, what preceded it, and more importantly what do we do now.
We’ll start as usual with the S&P 500 Weekly Chart:
Under the stimulus of QE3, stocks rallied in a stable, persistent uptrend from 2013 into late 2014.
From 2015 to this week, stocks traded in a sideways distribution or “arc” pattern complete with lengthy negative divergences in momentum, volume, and Breadth.
Be sure to view the “What Breadth is Saying about the Current Market” chart I’ve been promoting – and its correct message.
Here’s a specific planning chart from last night’s “Idealized Trades” Member Strategy Report:
The quote in blue is from Wednesday’s report, while the quote below is from Thursday’s report:
“At the moment, that appears to be exactly what’s happening.
Price was in DISTRIBUTION mode with DECLINING (deteriorating/diverging) Breadth and Market Internals and – as I noted – virtually every chart-based metric argued for lower prices.
As long as price remains under – and moving down away from – the 2,045 target level (achieved), then we’ll expect a continued “larger” retracement toward 2,000 or even 1,980.”
Note the “Rounded Arc” Arrow that pointed straight toward 2,000 – exactly where we are right now.
This big sell-off should not be a surprise.
Please join fellow members if you feel real-time strategy planning, education, and analysis would be beneficial to you (we believe it will) along your trading journey – we’d love to have you as a member.
For now, we’re focusing on the 2,000 “Round Number” Reference Target (achieved) and marking it as our short-term pivot.
Beneath lies 1,180 if sellers continue to push this market lower in ongoing distribution.
The Dow Jones Index is weaker than the S&P 500: Continue Reading…