Correction status, Index Overview

Even with today's wild ride giving us a hint of capitulation and perhaps stabilization going forward... at least in terms of crashing to new lows every day if not intraday volatility... we will remain in a correction until an uptrend resumes. As I said the two important things are to not call bottoms and we will test the lows. Therefore, any bounce that may develop here is still suspect and only part of the healing process. The test will come and it has to be successful to take the next step of a neutral to bullish outlook. Some comments on the indexes.....

Clearly the $SPX went crashing down to the March lows and found support there. Could call that candle a hammer, even a bullish harami. So a downtrending index with a bullish candle pattern... nothing but a short term countertrend signal if confirmed. While we can see the support from the March lows, the candle itself today shows us where the support is, where the buyers are. Lucky for intraday traders today the buyers showed themselves plainly by holding up the market in the face of the unwinding carry trade. I have marked in an oval a similar candle in the correction during March, note this bullish candle did not confirm and the market plunged anew. But, the low of that candle still represented an area of support that did end up holding. So if similar action develops here, we can have that one eye open for it. In short, potential stabilization, confirmed bounce and we look for the test in the coming days/weeks.


The DJIA and the $NDX were the leading indexes into the peak and continue to show their relative strength by making an attempt to hold the 200 day/February highs today. Yeah, it is ugly, but they are relatively strong. I made the post about tests of the low that don't necessarily have to go all the way back to the low.... that was about the $RUT which ended up making a new intraday low... but you can see in these charts that if a bounce develops here a test could actually just come back to the 200 day and not necessarily threaten the actual lows. That would be very bullish if we see that.

OK... the $RUT.... side note: I was short an Aug 700/690 put spread coming into today and I could not believe with only hours to go I had to worry about tomorrow's open!!! Kept thinking about a 5% fall putting us at 713... oh my oh my... ended up legging out buying back the 700 for .15 and then selling the 690 for .10.... so .05 debit not that bad even though it was not really at risk. Ameritrade needed some more fees from me. But the $RUT... so it LOOKS like we have relative strength here right? I mean classic double bottom potential, a test of the lows with a bullish engulfing candle! Woho! Here we go right? Perhaps... if I saw the $SPX, $INDU, $NDX join in the fun with this type of pattern I might even change my intermediate term outlook to neutral with confirmation. Getting through the test of the low is a step needed before you can get the correction over and uptrend resuming. BUT... what is concerning to me here is that the $RUT was relatively weak going into this correction. It failed to hit a new high with the large cap indexes and had in fact been lagging for months. So the relative strength we see on the chart here in the very short term is deceptive from an intermediate to long term perspective. You can see this in the distance the $RUT has traveled underneath its 200 day moving average. Therefore I do not see this as a leading indicator that this correction will have a successful resolution and continued uptrend thanks to strength in small caps, the leadership remains with the large caps and they have more work to do to get us out of this corrective phase. Thinking down the line, if we stabilize for a while and ultimately resolve to the downside into a bear market, I would look to the $RUT to LEAD to the downside due to the relative weakness it exhibits currently on the intermediate term. So that is a bit ahead of the game but it is the reason this otherwise nice looking test of the lows does not move my bullish needle right now.