On Tuesday, stocks charged ahead, breaking from a triangle (wedge) against the potentially bad news of a lower August Consumer Confidence Index and disagreement by Fed members of how to handle the economy. I noted on Wednesday that this is normally considered a “very positive development for the bulls.”
But that positive reaction was cancelled by yesterday’s negative reaction to positive news. Stocks opened higher with a triple-digit gain following better-than-expected domestic manufacturing data, but ran into heavy selling when the Dow Jones Industrial Average reversed at its 50-day moving average (blue line) and closed the day with a “bearish key reversal.”
The other senior index, the S&P 500, did no better, reversing from resistance at 1,230 — a number consider important since it represents a 50% retracement (Fibonacci number) from the July high to the August low.
Note: A “bearish key reversal” occurs when a daily trading bar reaches a new high in a trend and turns around to close lower than the previous bar. The pattern is a short-term indicator and characteristic of a pending market decline.
Yesterday, the Dow had a high of 11,716.84 versus a high of 11,712.6 on Wednesday, and closed at 11,493.57 versus the low of 11,528.08, qualifying yesterday as a bearish key reversal day.
What this adds up to is confirmation of the enormous resistance that has accumulated since February, and the difficult task the bulls have to overcome it. The resistance was made immediately apparent yesterday when, for the first time since the neckline break in early August, buyers were abruptly trounced just as they entered the zone of resistance.
And so as the bulls enter September, they are not only faced with the daunting task of overcoming an enormous band of resistance (see the Aug. 31 chart of S&P 500) but doing it against overwhelming technical indicators: a bearish daily reversal at the Dow’s 50-day moving average, a confirmed Dow bear market, a death cross, and the just announced AAII Sentiment Survey, which showed an increase in bullishness of 2.11%, its fourth consecutive increase in bullish sentiment. The AAII indicator is a counter-indicator, so this is a bearish response.
September is traditionally a difficult month for stocks, and this year has started with a continuation of that tradition.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
- See Serge Berger’s Daily Market Outlook: Is It Worth Laboring Over the Market Today?
- See Sam Collins’ Trade of the Day: Don’t Wait to Sell BP
- See Serge Berger’s Trade of the Day: 2 Ways to Take Aim at Target