Tuesday, September 01, 2009

On My Market Radar for a Weak Tuesday

With today's steep reversal on high volume (see ES chart above), I'm now watching the levels from the prior intermediate-term bottom on 8/17 and 8/19. A drop below those levels would suggest that an important bull top may have been registered in August. As it stands now, however, I'm treating this as a wide trading range defined by those August lows and the recent price highs.

One data point worth noting is that we're already seeing more stocks making 20- and 65-day lows than we saw at those August lows. That tells me that, although the market averages are above their previous low points, we're starting to see individual stocks breaking down. Of the sector groups, the raw materials stocks (XLB) are closest to those August lows, reflecting continued weakness among commodities.

Very solid buying came in when we traded below ES 1000 in mid August, launching stocks to new highs. Now, however, we're seeing very solid selling off the recent highs. Inability to find buyers below ES 1000 would suggest a major shift of sentiment among money managers. Conversely, should we see selling dry up at price levels above those August lows, we could see a nice run higher back into that wide trading range. As always, I'll be updating indicators via Twitter (follow here).