The summer is coming to an end for all practical purposes, with many traders returning from their vacations to a budding sharp rally. This presents an interesting situation for traders, for the historically weakest period lies directly ahead - the September/October time frame. Hence, the question is whether last week's rally was counter-trend in nature, or whether it represents a "thrust higher" of another sustained rally towards higher highs. In our opinion, it is too early to determine - but there several critical levels that will provide additional confidence in one viewpoint or the other.
Last week's S&P 500 rally was strong in terms of price and breadth, but not volume. This remains the hallmark of all rallies off the Mach-09 lows. But our main focus is upon the developing bearish consolidation after the sharp April-to-July decline. This ongoing consolidation is now approaching major overhead resistance at the 140-day moving average, which has proven its merit as resistance to the previous two rallies. In each case, this has led to a decline into major support at 1000-to-1038 zone.
Last week's S&P 500 rally was strong in terms of price and breadth, but not volume. This remains the hallmark of all rallies off the Mach-09 lows. But our main focus is upon the developing bearish consolidation after the sharp April-to-July decline. This ongoing consolidation is now approaching major overhead resistance at the 140-day moving average, which has proven its merit as resistance to the previous two rallies. In each case, this has led to a decline into major support at 1000-to-1038 zone.
Hence, if one is bearish such as we are at this point - the risk-reward dynamic is favorable for selling short the market upon a move upwards of 1116. One's stop loss point would be a breakout above the previous recent high at 1132, at which point it would be rather clear a larger and more powerful will have begun.
