Technically Speaking: Update – Markets Fail To Hold Support -

Technically Speaking: Update – Markets Fail To Hold Support

Oct 11, 2018Jeremy ParkinsonFinance0

This is a short update to Tuesday’s Technically Speaking post. In that post, I stated:

“In this past weekend’s newsletter, I discussed the fact the markets had finally awoken to the reality that rates have once again broken above 3%.

‘Speaking of rates, each time rates have climbed towards 3%, the market has stumbled.’”

Well, on Wednesday, the markets did indeed stumble.

As I noted, the market was testing the January breakout highs and that this was a “make or break” point. I noted the two important things we were paying attention to:

There is a defined trendline the market has held since the April lows. (Blacked dashed line) In July, the market broke that trendline but quickly recovered. A failure to get back above that trendline on this bounce, and a failure to attain new highs, will continue what appears to be an early topping pattern.

The momentum sell signal, which signaled a “risk off” market in early February, is very close to triggering. As shown this signal was very close to triggering in July but the market rallied strongly enough to keep that from occurring. Can it do the same this time?

I also stated:

“It will be imperative the market maintains support and musters a rally by the end of the week. Otherwise, there is a high probability the market will retest the bullish trend line from the 2016 lows. With the longer-term moving average currently running along that trend line, a break below that level changes the entire dynamic of the market to a ‘risk-off’ mode.”

I have updated the chart from Tuesday. Note the deeply oversold condition currently like we saw back in early February. These oversold conditions tend to generate a short-term rally that can be used to reduce risk into.

The break of support at the January highs triggered the “algos” to start selling, and the liquidation across markets was fast and furious. The selloff also triggered a short-term “sell signal” which suggests the markets have now moved into a “risk off” mode.