A Rare Selloff On Wall Street

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Monday’s close came near the 61.8% retracement of the rally that began in early June.

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Monday’s close also came near an area that featured four gaps (blue arrows below). While these gaps have been filled, it still tells us the market has deemed this general area to be important in the past.

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Another possible guidepost comes on the weekly chart of stocks (SPY) versus bonds (TLT). The ratio has made a stand near Monday’s close on several occasions. At the end of the week, we will learn something either way (bullish or bearish).

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UNTIL THE MARKET CAN MAKE A STAND, CONCERNS REMAIN

This week’s video outlines numerous short-term developments that prompted some profit-taking and defensive positioning last week. Monday’s session did not alleviate these concerns.

LOW, BOUNCE, OR BEARISH BREADTH THRUST

Given our current allocations, model readings, rare oversold nature at the end of Monday’s session, and the fact that potential support is within 3.3% of the close, it was prudent to see if the market can try to make a stand or bounce in the coming days. The concerns outlined in this week’s video remain, and we have to expect that rare and lopsided breadth sessions are most often found near lows, but they can also surface in the early stages of declines that still have room to run. Therefore, it is extremely important that we keep all options on the table, including selling into strength on what could be a short-lived bounce attempt. As shown in the chart below, the S&P remains above an upward-sloping 200-day moving average. The market  recently made a higher high and has yet to print a lower low. For now, we must balance the very concerning short-term data/facts with the still constructive longer-term facts.

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The chart below also aligns with the possibility of the market trying to make a stand in the coming days. The percentage of NYSE stocks above their 200-day exponential moving average is sitting near an area where the S&P 500 made a bullish stand twice in 2016 (see first two blue arrows and green lines). The blue dotted line shows the reading at the S&P 500’s June 2019 low. Like all the charts above, we will learn something either way.

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