Still no dip buying

End of Day Analysis

MARKET BEHAVIOR
Stocks slipped for a third straight day, undercutting recent support at 1,780.  The next technical level is 1,760 and the 50dma.

MARKET SENTIMENT
Volume was surprisingly light for a second day as a wave of fear and panic selling failed to hit the market.  While this orderly selling can be bullish because it shows most holders are confident and unwilling to sell modest weakness, it also means there is a huge amount of potential selling still hanging over the market if fear and panic take hold.  Since trading volume is near average, it shows sellers are not showing up in droves and this weakness is primarily caused by a lack of demand as dip buyers remain MIA.  Is this because they are waiting for more attractive prices, or more worrisome, we are running out of new buyers willing to prop up the market near all-time highs.

TRADING OPPORTUNITIES
Expected Outcome:
At this point the near-term trend is down since we were unable to hold support at 1,800 Wednesday and 1,780 Thursday.  Low-volume selling indicates we are nowhere near capitulation and there is plenty of downside potential if the herd gets spooked and rushes for the exits. The next level to watch is 1,760 and the 50dma.  Where we go from there largely depends on how emotional traders become.  If they remain calm and collected, expect more selling.  This market is stalling on over bullishness and we need to reset sentiment before the rally can resume.

Alternate Outcome:
This dip will bounce at some point because they always do, the only debate is how low we go first.  We’ve seen a lot of distribution over the last three weeks with 12 of the last 18 days finishing in the red.  Anyone selling at the top has plenty of cash to buy the dip when it reaches an attractive level.  Recently we have been bouncing sooner and sooner and could very well could be on the verge of yet another rebound to new highs.  The key is reclaiming support at 1,780 and 1,800.  With the market so perfectly setup to selloff, if bears cannot get the job done, they show they are powerless to hold this rally back.

Trading Plan:
The new lines in the sand are 1,780 above and 1,760 below.  Reclaiming 1,780 shows buyers are finally stepping up to defend this rally.  Falling under 1,760 could finally trigger that high-volume wave of capitulation selling as confident owners turn into fearful sellers.  So far nothing indicates this move is more than a routine pullback to support, but given how much potential selling is still out there, things could get ugly in a hurry if fear takes over.

Plan your trade; trade your plan