Market Alert - The Close

Stocks started lower as anticipated, then rallied to positive, also as we anticipated, continuing the relief/reflex bounce. Stocks made low to high moves, moving through resistance. The indices did the same, mostly moving through the 50 day MA's and some prior price highs.

Then the moves stalled and tested into the afternoon session. A rally into the last hour looked positive, a good rebound from an intraday test. The last half hour, however, indeed the last 15 minutes, was not positive. Stocks sold back sharply and all indices but RUTX, the laggard of late, closed lower. NYSE indices were leading even as NASDAQ traded from modestly higher to flat. By the close the relative positioning was the same, but all prices moved down.

Why the selloff? ETF's. They rebalance at the end of the session and with the moves down and up, they were moving the market again in the last few minutes. That spilled over into the afterhours, however, with SPY dropping a full point from the 4:00ET close. So, will the market bounce after the 'pause' (that included a lot of down, up, and down action) or was that a one-day move, indicating the initial leg lower is not yet over?

SP500 -13.48, -0.50%
NASDAQ -63.90, -0.90%
Dj30 -19.42, -0.08%
SP400 -0.08%
RUTX _0.05%
SOX -2.24%
NASDAQ 100 -1.26%

VOLUME: NYSE -22%, NASDAQ -25%. Volume faded as stocks bounced and then sold off. That lends some credence to the 'pause in the relief bounce' theory. Of course volume remained well above average.

ADVANCE/DECLINE: NYSE +1.1:1, NASDAQ +1.1:1

The end result was a low to high back to low move. That in itself was bullish given the recovery to positive off the lower opening, but the inability to finish the move, and indeed losing the upside, was bearish. This shows a market still very much in the fight in the consolidation.

That is not unusual. These moves are volatile because the buyers and sellers are battling. As such, paused in rebounds or selloffs are normal. For the upside, however, you want to see the market shake off this pause session that in most cases showed doji on the indices, and continue the relief bounce. If not, then the relief move was too short and a lot more work is needed. Put another way, if the indices cannot continue the relief bounce in a hurry, this initial leg lower is not over and likely a lower low will be put in as the first low of the correction.

The session was not a great continuation of the Tuesday reversal. Indeed, by the close it was not a continuation at all. The indices are at resistance in some cases, sitting near support in others. Leaders show some good action, many stocks need help.

Thursday the market either moves back up after a pause in the relief move or it rolls back down and continues the selling, still seeking the low on this leg. There is a third possibility: more of the same. The latter is not very palatable as it leaves the question open.

We picked up some new positions on the moves; they are in the same situation: decent patterns, could not hold a move higher.

If the relief move has any strength it should continue relatively quickly. Futures are down afterhours so we will see. Still a lot of volatility day to day and intraday. Of course that makes sense because as noted all week, this event has a lot more turns to come.

Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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