Chalk Talk: So Much For The Rally

By David Moenning

Although we disagree with the idea that "the tape tells all," it is important for all traders to stay on top of key technical happenings on the charts. Below is our current "executive summary" take on the State of the Tape.

Chalk Talk: June 25

Our Current Take:

The technical picture has changed dramatically over the past three sessions as the uptrend that was developing last week (and was looking promising) is now toast. In addition, the head-and-shoulders bottom formation that many were talking about has been reversed. As such, it appears that a period of price discovery to the downside (aka a retest) is "on." First test is at 1310 then 1306 then 1285.

We would consider being short-term buyers at: A successful test of 1310 support and a rebound over 1320

We would consider being short-term sellers: A close below 1310

S&P 500: Intermediate-Term View

The indicators we display on the charts below include: 5 day weighted ma moved forward two days (blue dash), 10 day weighted ma offset by 2 days (orange), 18 day weighted ma (cyan), 25-day simple (green dashed) and stochastic %K using 14 and %D.

 

Trend and Momentum Indicators:

Short-Term Trend: The short-term trend is back to negative for now as price is below our 5- and 10-day ma's and the 5-day is below the 10-day.

Intermediate-Term Trend: Looks like we jumped the gun last week on upgrading the intermediate-term trend to moderately positive. And as we wrote last time, a move back below 1330 negates the upgrade. Call it neutral for now.

Market Internals: Our s.t TBC model will undoubtedly flip to negative today while our i.t. TBC model remains neutral at the moment (although it very well may move to negative overnight if today's selloff holds)

  • TBC = Trend-and-Breadth-Confirm Model

Market Momentum: All three of our momentum thrust models have had given us buy signals in the last two weeks. However, the indicators have now fallen back to neutral. Bottom line is the "thrust" was weak.

Support/Resistance Zones for S&P 500:

  • Current Support: 1310
  • Current Resistance: 1335

Early Warning Indicators:

Overbought/Oversold Condition: Stocks are no longer overbought from a short- and intermediate-term perspective, and are once again approaching oversold from longer-term perspective.

Investor Sentiment: Our sentiment models are back to never-land as the batch of indicators is currently mixed. However, given the severity of the current dive, we wouldn't be surprised to see negativity perk up again quickly. Should negative sentiment readings be accompanied by a successful test of the lows, the bulls may (key word) have a decent set up. But there are several "ifs" involved in this scenario.