This column is an update on a June 19 column suggesting the planets were aligning for a big market reversal. It happened last week.
SPDR S&P 500 ETF (NYSE: SPY) Daily Chart
As you can see from the chart below the market became volatile in early June with a broadening formation. This type of price action is an early warning that a trend reversal is near. It was only two days later when we saw stocks make a new high, which is the first ingredient for a trend reversal to take place. Once a higher high was made sellers quickly jumped back into the market pulling prices back down. Keep in mind the higher high which was made was another early sign that a trend reversal was likely to happen.
During this time I was keeping a close eye on the time and sales window which I have filtered to show me only orders with a market value of $3 million dollar or larger. This helps me watch what the big money players are doing. Following their coat tails, if done correctly, will help keep you out of the market at times and also gets you in before the masses jump on the wagon.
The two key sectors I talked about on June 19th were the Financials and Tech. Both these sectors must move up if we are to get a decent bounce/rally in the market.
Financial Sector Daily Chart
By zooming out on the daily chart of the Financial Select Sector SPDR (NYSE XLF) we can see in terms of both price and volume that the sector was at a major support level. Also it had just fallen sharply for more than a week making it oversold and ready for a bounce. A few days later financial stocks rocketed 11% higher as expected and the broad market (S&P 500) posted some decent gains.
The tech sector was in the same boat as the financials. Tech stocks, represented by the Technology SPDR (NYSE: XLK) jumped an average 6%.
Weekend Trading Conclusion
In short, I feel the market has shown us some decent upward momentum and everything is now at the point where a pause is likely. I expect some type of pause or pullback in the coming week and then the market has a major decision to make. Will it continue and start a new leg higher or roll over and die.
That’s the next key question/action about to take shape and I will help guide you through these times each day with my pre-market morning video analysis.
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