The market tumbled lower today after the large gap up in the morning that was sold immediately. It was a potent bar lower in the indices as they closed the day on lows with the Nasdaq sliding 1.06% and the Dow and S&P both closed down 0.84%.
After yesterday’s nasty gap down in the market that resulted with a close on lows, our short-term view became more bearish on the short-term as the market felt vulnerable to lower prices. There was a large travel range in the S&P today from the morning high to the afternoon low. It is tough to initate new shorts after this type of move as the trading oscillator reaches oversold levels. It would seem as a bounce back into resistance could most likely be shorted.
Some key levels of resistance to know to judge the overall temperature of the market are 1620-1622 which lines up with yesterday’s low and bigger resistance is 1630-1634. Use today’s low of 1610 as your new short-term point of reference which also corresponds with the 50-day moving average.
At this point, after scanning many charts in many different sectors, there are not as many bullish looking charts out there. There are some key stocks that are breaking down and other leading stocks that look vulnerable to lower prices as they rest of upper level support. Yesterday’s action signaled to traders to clean-up excess longs and take a more tactical approach to the market.
Disclosure: Scott Redler is long SPY puts