Good morning. Yesterday was a crack in the Santa Claus rally. Today with a flat open (there is a premarket rally going on now that I am done writing this!) we will see the real test between the buyers and sellers here. Yesterday was weakness but it was helped with a head-start gap down. The weak hand longs have been folded and today the real players are in.
First lets go around the world
Asia
Japan and China joined the selling party. China had a trend down day and unlike the US closed on the lows of the day. In Japan there was a late afternoon rally that failed and the Nikkei closed on the lows of the day.
Europe
Europe is hovering around flat today with only the DAX of the majors showing a little green. The DAX opened weak and has gained from the open while the FTSE opened stronger in the green and has sold off a little here.
The UK had mixed economic numbers last night so no real push in either the up or down direction.
Homeland
The US has no big econ numbers this AM so the gap will most like stay where it is now. Earnings are beginning so we will have to add those to our watchlist for pre-market movers. Watch around 2pm when that beige book is released.
Earnings today:
Sentiment Charts
Moving to the Sentiment Charts. The charts were pushed into bearish territory with yesterdays gap down.
10 Day High - Low:
The 10 day high - low chart moved from + 2 to - 6 yesterday which is a perfect bearish score. For the first time in 16 trading days the NYSE made more 10 day lows than 10 days highs. The RUT remains the weak one now amongst the sisters. All three indices have downward momentum. I expect the first to recover will be the RUT as it has been pretty weak for the past 5 days now. If we do correct here expect to hit that -40% number before we start another leg up.
40 DMA % Index
I wrote an article headline last night about this chart and the RUT crossing. This has been a good sell signal since the March 9th rally. This chart scores a -2 since the NYSE and NAZ came in neutral without their zero crossing. Watch today for regained strength. The bears need to keep the RUT down for a second day here as they have begun to crack the upward momentum in this rally.
52 Week New Highs
This chart scores a perfect -6 as all indices failed to past the previous days new high and the momentum indicators have turned to the bearish side. The bears will have to work hard to keep this chart from scoring neutral tonight. It would be very difficult to get a positive score it would have to be one heck of a rally. We will monitor in the Trading Room particularly the NYSE which needs to put up about 90 new 52 week highs in the first 30 minutes for a neutral. To turn the momentum it will need about 190 new highs.
Conclusion
Much damage was done to the bulls momentum yesterday has the chart scores total up to -14. Only the NYSE and NAZ crossing for the 40 DMA % Index keeps us from a perfect bear score. The bulls are still around and buying was demonstrated at the close, but it was not strong enough to neutralize the momentum breadth charts. I would expect a rally this AM with a failed attempt and afternoon selling. I think the bulls are really in trouble now but to get them to acknowledge it will be a difficult task. Old lessons are hard to relearn and this market for the past month has been teaching "buy the dips".
Being conservative here the ES trend line form the 12/20 current leg start shows the lower trendline did not get broken yesterday. There is a bullish case here so be careful.
It took us just two days to move from the top trendline to the bottom. On 12/29 it took us three day for the same travel distance so the last two day have been pretty strong on the downdraft. For the bears to have a celebration they need to break that lower trendline which for today's close sits around 1131.75 so mark that on your charts.
Attempting to box in the ES today is more difficult as yesterday's trading has expanded the volatility. I have added some other lines of interest I will be watching and trading from. The overnight ES has had a nice 5 point range in here. It is unlikely that we will have a complete meltdown today. There is too much uncertainty here with a lot of bullish sentiment still in the markets added in with OPEX and earnings annoucements. A breakout above the 1141.50 will cast doubt on the legitimacy of the bearish push yesterday. A break below the 1131 will break that upward trend line and show real loss of momentum in the pricing action.
Watch today's A/D lines in particular the NAZ line, It is possible that with the high tech earnings beginning this week this index could take a leadership role here and lead the next charge for the bulls. The NYSE still has a ways to go for weakness and that DOW, wow.. I published a chart last night showing the relative performance of the indices since their Friday's close. The DOW is still positive! That needs to change.
Expect a rally and watch for further weakening in the sentiment data. -1.5% is just too small for a correction, isn't it? Any strength will move the momentum charts back to neutral today.
Hope to see you in the trading room, if not in the markets.
Marlin aka RedlionTrader
