Stock Market Collapse Postponed Due to Accumulation Activity
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Read this note for the full story.
The market closed positive yesterday. That doesn't sound like a huge accomplishment. And on most days, a positive close is nothing to write home about. But the positive close yesterday was impressive, to say the very least.
In an amazing show of fortitude, the bulls somehow pushed the indices higher. On Monday morning, the indices were coming off of two horrendous distribution days (last weeks Thursday and Friday), SPX had lost the 1175 support zone and the indices overseas were down 2%-5%.
Stocks were poised to open lower in the U.S. - and they did. For a lot of the session the U.S. indices traded in the red.
But in a late day price surge, the bulls defended 1131 support (1136 was the bottom) and rallied up to and above 1155 support. Volume was jacked, and technology, financial and energy stocks saved the day and led the bullish charge higher.
Now, I'm coming off a little bit more bullish than I should be. But the big win by the bulls yesterday took a "worst" case scenario off the table, in my opinion.
Yesterday, the indices were poised to collapse and a break of 1131 on SPX looked all but certain. And once 1131 breaks, it's a quick ride to 1115. The 1115 zone is strong support, and won't be lost easily, but given the prevailing bearish sentiment from the weekend that support zone would have likely crumbled too.
And once 1115 breaks guys, it's all over; the indices are headed to 1050 (minimum) quickly and if the guys at BAC are correct, SPX could have been headed to 900.
But, the bulls defended 1131, and rallied back to 1155 (above) support. And while the SPX, and the other U.S. indices could ultimately collapse another 22% from here, the win yesterday postponed (if not completely negated) that decline for another few weeks.
Put simply; if the indices were about to collapse (which, technically, is still on the table until 1175 is regained by buyers) the market would not have been able to close positive yesterday.
The bulls still have a lot of work to do. It's paramount that the U.S. indices close higher today and that the bulls take back 1175 by tomorrow. But yesterday's win by the bulls prevented an all out rout in the market yesterday. And now those lows in the indices yesterday need to hold if the bulls are to put a strong rally in place.
The U.S. indices will not receive any help from Asia today where indices were down about a percent. The European indices are modestly positive, but any gain from Europe is a blessing lately. Oil has rallied this morning. And gold also looks ready to open higher this morning, although I don't believe that gain will last. The bulls need to protect 1155 today, and preferably then rally to 1175 - any move above that level is a positive development.
Let's keep the stops tight today. The bulls have a great chance to put a stop to the bearish trend and perhaps start a rally back to 1250 today. But first, they need to regain 1175 - and until the bulls do the bears are in charge of the trend.
