Market behavior was negative today as the open was a gap down and recovery never happened. Looking at the 10-minute bar chart below, you can see how the market just rolled over and hardly put up a fight to regain losses.
After we had the long-term signal change to SELL yesterday, it became clear we needed to zoom out and reevaluate the scene. Looking at the daily chart below you can see how we drew a declining tops line from April high to the July high. From there a line parallel was drawn and moved downward to form a trend channel. You can see that the previous market lows line up quite closely.
After a day like today with a gap down, the reflexive action is to look for a rebound back up. The problem is that we are not in a favorable climate. We just had a long-term sell signal indicating a move to a bear market. We have a chart that resembles the beginning of a waterfall move down. Like a waterfall, stopping and reversing the flow is going to be very difficult and will require a sturdy dam. The last adjective I would use to describe current support is "sturdy". We've already broken through short-term support today and now with the next support line many points away, I think the bearish current will carry us further down.
A subscriber asked about oversold conditions in our indicators. Looking at our indicators they are getting oversold, but I would not describe them as fully oversold...yet.
Here is a series of our current indicators, you can see that although they have moved below neutral, there is still 'room to grow' oversold or further oversold.
Below the McClellan Oscillator (MCO) is starting to look oversold. The 10% index is accelerating downward and hasn't turned up. Both indexes are reaching a point where they should start to turn up (as oscillators eventually do, even if market continues down), but the MCO should remain below zero a bit longer and until it moves up over zero the Summation Index is going to continue to fall. Until the Summation Index bottoms, the medium-term market is not looking good. This certainly goes hand in hand with the declining trend channel we've highlighted today.
Bottom Line: An intermediate-term declining trend channel has been drawn to help us visualize the context of having so many neutral and bearish signals. With our indicators still not quite oversold, or better said, not oversold enough, we may continue riding down this waterfall.
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SIGNALS: Here we include a picture of the current day's signal table to provide a kind of archive that can be referenced in the future. To access the current table with active links see the Decision Point Alert Daily Report.)
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Technical analysis is a windsock, not a crystal ball.
