The indices experienced an important technical week last week. Led downward by tech stocks, transportation, and small caps the indices suffered sharp declines and settled near KEY technical support, which if violated, might mean additional sharp losses may be about to follow.
However, after 5 waves down in typical Elliott Wave fashion they have reached critical short-term support near the bottom of their channels. Market breadth reached 10-week lows and are short-term oversold This is very similar to what we saw as the 2022 bear market went into overdrive to the downside. So the risk here is very real for an immediate downside extension and a more deeply oversold market.
As I had stated in the last couple of weekly briefings, I am still ideally looking for a more deeply oversold level on the McClellan Oscillator, a higher fear reading in The VIX volatility index, and deeper intraday negative TICK levels of downside intensity.
In the very near-term we are very oversold and could soon see a furious multi-day rally begin at any moment. However, it might be difficult to have a sustainable intermediate-term rally when there are only 26% of stocks on the NYSE technically healthy; until this indicator turns up in a decisive manner, all rallies should be viewed with extreme caution and suspicion.
The current correction in various parts of the equity markets has been catalyzed by the move higher on the long-end of interest rates, not by an earnings recession. Should the 10-year break above 5.20%-5.40% a parabolic blow-off in the 10-year toward 6% could come into play. That would obviously be quite negative for equities. Next weeks FOMC interest rate decision should be a catalyst for the markets and likely to cause extremely near-term volatility.
In Addition, What if Apple disappoints badly next week? Any break below the 200-day – $338.53ish – on the QQQs would catalyze further downside for the other indices. It might get very messy quickly should any such break occur. Extreme caution is advised over the next week or so, and my advice is to tread lightly until the market experiences an obvious selling climax or a dramatic upside reversal.
In any case, the bearish trend we are currently seeing is usually fertile ground for the next bull as new leaders emerge, quietly showcasing strong relative strength during such periods. My more extensive and detailed Weekly Market Wrap-Up Video always highlights the trends that are exhibiting the strongest relative strength patterns and technicals. Be sure to review that video for the possible best long ideas going forward.
And remember, Trade what you see, not what you think!
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