On October 23 (this Tuesday), the S&P 500 recorded an undercut price low that occurred with lower levels of selling pressure than what we saw on October 11, when the previous price low was established. In other words, the lower levels of selling pressure for the Tuesday low represented a possible short-term positive divergence. The stage is now set to test the domestic market’s mettle. Have we seen a climax in short-term selling pressure, and will buying pressure start to take over? Or is this a head-fake? For me to have confidence that a short-term low (support) is in place, I would like to see more positive breadth divergences and indicators turn positive in addition to what I summarize below. This is an important inflection point that will help define whether we are still in a cyclical bull market or not.

S&P 500 Chart. NYSE Total Volume.
S&P 500 Chart. NYSE Highs minus Lows.
S&P 500 Chart. CBOE Total Put/Call Ratio: 5-day average (blue) & 10-day average (orange).


Since bull markets should respond favorably to oversold conditions, especially if pessimism is high and a very short-term low-rally-retest sequence has developed, we need to see a broad (global and domestic markets stabilize and move higher in sync), strong (NYSE Up Volume to total NYSE Up and Down volume being 90% or greater, or the NYSE Advancing volume beating NYSE Declining volume by a ratio of 10 to 1) and sustainable topside reaction now, ideally accompanied by some type of breadth thrust.

With the quality of the next rally being critical, if this does not occur and the S&P 500 violates intermediate-term support (2691/2676), within the context of a secular bull market, the odds will favor the end of the cyclical domestic bull market. A 50% retracement of the rally from the 2016 low to the 2018 peak is approximately 2375. The February and April 2018 lows of 2532 and 2554, respectively, also offer support.        


I am in the process of developing a table of technical indicators that will help to discern when a low has been established and a bottom is developing. Though the table isn’t complete yet, I wanted to share some initial observations about yesterday’s tape action in this update.

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Day Hagan Technical Analysis Tuesday Webinar with Art Huprich, CMT, November 13, 2018 at 4:15 PM EST.

Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

—Written after the market close on 10.23.2018. Chart sources: Stockcharts.  

PDF Copy of Article: Day Hagan Tech Talk October 24, 2018 (pdf)

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