Get Ready For GDP Report
Mr. Market sure knows how to find a way to frustrate both the bulls and bears.
The market continues to consolidated, though today was the most challenging. After a quick bounce on the gap, sellers took over control throughout the early sessions. The bulls refused to lose the battle and immediately pushed the market higher, but sellers returned again in the last minutes of trading to push it lower, but well off the intra day lows. So it's difficult to conclude who won today's battle.
The 1 minute point & figure chart of the S&P above indicated we're in a short-term downtrend. In fact, the trend is down - or consolidation - until the June highs 1,130 on the S&P is solidly broken. From what I see on this chart, today's midday rallies was simply just a dead cat bounce. Coupled with the fact we're overbought, and I fully expect the market to pullback further in the next few days.
The bottom line is the S&P must hold above the key support 1,080 before we closed out the month. A closed below this key level tomorrow could signal deeper correction ahead. In my opinion, as long the S&P remains above 1,090 in the next couple days then we could see a huge rally in the next several weeks after the overbought conditions is removed. Obviously, tomorrow's GDP numbers will move the market. If today's action is any indication, we should expect increase volatility tomorrow.
Triangle Consolidation
The market has now put together six straight sessions of higher highs and high lows!
For the first time in a few sessions, the market failed to rally in the final minutes of trading. The S&P 500 point & figure chart above shows the price is in a triangle consolidation pattern which normally favors upside breakouts. As can be seen, we have a series of activated upside targets which remain unachieved. The activated downside target 1,106 was also failed to achieve today which is quite a positive for the bulls given we're in overbought conditions, though not maximal overbought.
We have seen both the Russell & Nasdaq lead the market higher since the July lows. Today, however, they both lagging even though the market is in tight consolidation. Could this signal deeper pullback ahead? I don't know, but at least it suggests to be more cautious on the long side.
The bottom line is that today's consolidation is exactly what the bulls needed. The short-term bullish indicator is not yet overbought, so the market still have room to rally in the next several days. I'd look for the S&P to find resistance at 1,130 if it's fortunate to rally further. As for me, I have initiated a small put positions in the SPY Index at this morning's gap. Obviously I will cover my positions if today's highs is solidly violated. More importantly I would turn bullish if the S&P remains above 1,090 in the next several days.
