I am leaving in a few days for Richmond, Virginia, to speak at the Celebration of Life service for a 65-year-old friend I had known for 30 years. After I reflected on his life, my mindset shifted, and I thought about the similarities between life and the current condition of the domestic equity market. Specifically, in life, setbacks occur when “things” seem to be running relatively smoothly, and in the stock market there are rallies within downtrends, just like there are declines within uptrends.

With the S&P 500 (SPX) currently testing support, a near-term positive OBOS divergence, and the selling intensity on 10/26/18 being less than what it was on 10/11/18 despite the SPX being lower, the stage should be set for some short-term price stability/relief. However, given the amount of chart damage that has occurred, a lot more work (backing and filling—rallies and retests over time) is necessary for a tactical bottom to be established.  

S&P 500 Large Cap Index Chart. RSI - Overbought/Oversold Tool.

Additionally, a number of levels of overhanging selling pressure can be identified (2725+/-, 2750+/-), as depicted in red (second chart) and by the flattening/declining 200-DMA, currently at 2766 (blue line in first chart).

NASDAQ Thirty Minute Chart. DJIA Thirty Minute Chart. S&P 500 Thirty Minute Chart.

Summary: Since bull markets should respond favorably to oversold conditions—and so far that hasn’t occurred (this is bearish)—for me to have confidence that a short-term low (support) is in place, I would like 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, ideally leading to some type of breadth thrust. Until downside momentum is broken, an emphasis on managing risk appears prudent.

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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 before the market close on 10.29.2018. Chart sources: Stockcharts.  

PDF Copy of Article: Day Hagan Tech Talk October 30, 2018 (pdf)

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