Planning the Pullback in the Big Three US Equity Indexes

In simplest terms, a pullback or retracement is the most logical thing to expect for the US Stock Market at the moment.

However, logical does not mean guaranteed.

Let’s chart the S&P 500, Dow Jones, and NASDAQ to plan the possible pullback already underway:

Stepping back in September, we saw a similar “overextended” rally into the 2,010 level with negative divergences and logical expectations for a pullback (also called a ‘retracement’).

We saw this pullback take price to the first target of the rising 20 day EMA (1,990 area) and then just shy of the second lower target near the rising 50 day EMA (1,975 at the time).

Buyers intervened with another surprise rally that thrust the market – via a short-squeeze – to all-time highs above 2,020 ahead of what may be a Bull Trap.

Friday gave us a bearish reversal candle on distribution volume while today (so far) provides a liquidation trend day lower.

The S&P 500 already achieved its first target of the rising 20 day EMA (just under the 2,000) level and we’ll focus our attention on this level for a potential bounce or stall into support currently near 1,994/1,995.

Otherwise, the market opens another sell pathway toward the 1,980 confluence.

The picture is similar in the Dow Jones which showed relative strength:

The Dow had a stable retracement in September that reversed just under 17,000 and the index burst above 17,300.

Now, we’re seeing a pullback/retracement from a higher level toward the first target near 17,100.

Failure (a breakdown) at 17,100 targets the 16,950/17,000 support level (lower Bollinger and 50 day EMA).

Finally, the NASDAQ has its own target and structure:

Divergences in all indexes suggested a logical pullback and the NASDAQ is trading closest to its second downside target which is the confluence of the rising 50 day EMA and the prior September price low all near the 4,500 round number index target.

Again, we’re watching these specific levels in the indexes for possible support-bounce plays and if these fail to occur today or tomorrow, look for these indexes to continue the retracement and likely accelerate the selling pressure taking place now.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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