What will you do if the market gaps below today’s low?
I don’t have any reason to believe it will happen, but it could. And if it did, would you know what to do? You should.
The markets have moved up nicely in the last 5 of 6 trading days, and the 1-day pivots are stacked positively. This means that the bulls are in control until the markets trade below S1 which happens to line up relatively close to today’s low. Additionally, today’s low represents the first daily low below the breakout level of the 8/17 swing high. This makes it a very significant low for defining the bullish and bearish bias.
If you add that all up, and a move below S1 will not only mean that our rules say you should have a bearish bias, but it could lead to a significant move lower.
So why might the markets turn lower from here?
If you put your Fibonacci retracement lines on the move from the 7/21 high to the 8/9 low, you’ll see that on the SPY today’s high was right at the 50% retracement level. I’d never just assume the market will sell off from the 50% mark, but if it does begin to sell off you should pay attention.
On the bullish side, when markets gat back over 50% mark in a convincing way it should mean the down leg is done. We’re not there yet.
As I’ve said all week, the closer we get to the 3-day weekend the lighter the volume may become so be careful about illiquid stocks.