The S&P 500 printed its third “inside day” in a row yesterday which suggests a very indecisive market. Generally speaking, the trend preceding any consolidation patter such as inside days, is more likely to continue than reverse out of the pattern.
The Dow Industrials showed signs of technical weakness in the form of a bearish “outside reversal” on Wednesday that could be forecasting a profit taking pullback in the index. A violation of 19,748 would be near-term bearish from a charting standpoint.
The S&P 500 rebounded from morning losses to finish the session at yet another record closing high. The post election price action has been impressive and continues to strongly favor the bulls for the medium term.
The S&P 500 printed an “inside bar” on the daily chart yesterday which is historically a signal of indirection. But the bulls have momentum on their side since the election, leaving the path of least resistance higher.
The S&P 500 rallied more than 2% yesterday, reclaiming all of last week’s losses as traders positioned ahead of the US Presidential election. But, the near-term trend remains a bearish one in the broad index.
Stocks sold off several points in the opening hour of trade yesterday in what turned out to be a classic “gap fill” between yesterday’s open and Monday’s morning high.
Dow Theory has been bearish since July of 2015 however, the Transports are threatening to confirm a bullish signal in the DJIA from earlier in the year which would shift the historically accurate indicator back in favor of the bulls.
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In the wake of this week’s central bank decisions, a relief rally has carried the S&P 500 right back to the middle of its late-summer trading range between 2160 and 2190.
Stocks surged back yesterday after dropping the most in nearly three months on Friday. The environment remains volatile and that is poised to continue with the next two critical catalysts coming next week: the Fed and BOJ.