When is Bad Good?

S&P500 daily at end of day

End of Day Update:

Stocks fell further on Monday following Friday’s reversal from all-time highs. Volume was well above average as we broke under prior support/resistance at 2k. While the daily chart gives the impression the market sold-off through the day and finished weak, the intraday chart shows we found a floor in late-morning trade and moved sideways the rest of the day. While this seems like a minor nuance, it is actually fairly significant.

The market gapped lower at the open and continued sliding fairly aggressively until just after 11am Eastern. This pushed us under the psychologically important 2k level and set off a wave of automatic stop-losses littered under support. But rather that accelerate the selloff, these stop-loss orders were the last of the selling before we found a bottom above 1,990. This weak price-action dared owners to join the selling, but most resisted the temptation and stood confidently by their positions. If this selloff chased off the weak, then all we are left with is the strong.

While I’m not super bullish on this market, the stalled selloff shows supply dried up fairly quickly and that bodes well for a bounce to new highs in coming days. If the market finds support Tuesday, then the selling is done and we are headed higher. If we breach 1,990 and continue lower, then Monday afternoon’s support was a false bottom and the 50dma is in play. Trade accordingly.

Jani