The stock indexes were little changed today. The S&P was down slightly, while the Dow and Nasdaq were a bit higher. Gold was flat. The chart here is the S&P spider ETF with the New York Stock Exchange advance/decline line in the sub-graph – with the blue line the AdvDec line and the yellow line a moving average of the AdvDec line. Using this technique, trend changes most often occur when there is some evidence of divergence between prices and the AdvDec line, with further confirmation when the AdvDec line moves beyond the moving average. The red down arrow of a few weeks ago was a perfect example. So far there has not been a similar occurrence to the upside to suggest this down-move might be over. Climactic bottom can reverse on one bar without the need for the usual divergence, but lacking that divergence is cause for caution. On the S&P there are mostly lower closes than the opens. Of the last eight days there have only been two days where the close was higher than the open, as seen by the two hollow candles, as compared to the six black candles. The price structure also shows the trend as being clearly down.
I have drawn two blue reference lines on the previous pivot points. The lower pivot point was taken out three days ago and should be redrawn on last Thursday’s low. However, since that was for the moment a climactic sell-off, it would not be reassuring for the bull case to see price go back down into that tail area of the candle. I drew a red line on the low of the preceding bar, and near the low of Thursday’s candle body. That area should offer good support if the market is to work its way higher. That point is not exact, but the point I’m making is prices shouldn’t go much below that line, and if it probes down into that tail, prices should again reject that level and turn higher. If prices start accepting the level into that tail the odds are of more downside. If last Thursday’s price action was a climax, then it would be nice to see prices roll down a bit in a re-test, and then roll back up, with the AdvDec line making a higher second bottom, and then moving above its moving average.