Another rally failure, and down close

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The stock indexes tried to mount a rally today, but selling kept coming into each impulse up. The markets finally succumbed to the selling pressure and closed with sharp losses across the board. The root of the problem seems to be the financials. I included a chart of the XLF, which is the S&P spider financial ETF. This index has been week for some time as the Dow, S&P, and Nasdaq have held up relatively better. Now the broader indexes are playing catch-up to the downside and have taken out what looks like a double bottom forming on the price bars on the right side of the chart. There was a major divergence going on between the broader indexes and the financial sector going back for months. Of course, it is now clear in hindsight, and there was little at the time that this sector would lead the whole market lower. But there were some clues on how to time this sector that are worth reviewing.

There is a divergence between the prices grinding higher, as marked by the blue line on pricees at point #1, and the successively lower peaks on the adaptive CCI in the lower sub-graph. That last peak in prices failed to even get the CCI over the +100 line. Then to the left of point #2 you can see the regression curve being penetrated, first on only one bar, then resistance at the top of the error bands, then finally breaking the swing point just to the right of point #2. At first there was little follow through to the downside, and there were two snap back rallies up to the breakout point. Then at point #3 the last swing point was taken out. As confirmation, points #4, #5, and #6 show rejections of the zero basis line, providing good entry points for shorts. The current rejection at point #6 is setting up to possibly hook back up around the -100 line, which if happens could indicate a bounce in this index. I try to point out a possible alternative, but the trend and momentum at the moment is clearly to the downside.

There has been much damage done to all the stock indexes. A tradeable bounce is overdue, but with trends clearly down, the safest trade is from the short side for now. It does seem like the traditional October lows keep moving up in time each year. Just when everyone assumes an October low, the market will do what it can to confuse the masses. There have been years lately when September has marked a significant low and the market rallied in October, confusing the pundits. Maybe it’s now being pushed up to August. Just a possibility. But I won’t hipshoot on that thought. I’ll await a signal from my indicators.

Gold was little changed, and nothing is being indicated on my charts at the moment.

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