Market Summary:
The SPX index was certainly volatile during yesterday’s session with an initial move down of 72bps, then a rally of ~1.90% followed by a slide to end the day of ~1.70%. None of this has been a surprise as I have been cautious on the market since early July. As the index was achieving all-time highs on July 16 I had established that my internal model (MOTR) was showing underlying weakness and negative divergence. On July 16 I wrote that “I am growing more confident each day that the model will shift to outright negative in the coming sessions and that support levels below will be tested in the near term”. With the index at 5667, those support levels identified below were 5562, 5589, 5500 and 5400 (archived report available on website below). The index subsequently sold off ~5% and has hit every one of my targets! Moving forward, the MOTR model remains Negative suggesting additional downside risk remains. That said the 5400 level is a major support line as it represents the base/support of the gap created from June 11 to June 12. A break below 5400 would create an immediate downside target of 5350 followed by 5300. I will continue to update this report as the MOTR signal shifts. In short, the model nailed this move down and risk remains to the downside in the near term.
I will be traveling over the next week. The next report will be issued on August 5.
Trade Support:
5400: Low/Base of the June 12 Gap
5350: June 11 high
5300: Previous Resistance/Support
Trade Resistance:
5500: June 20 high and Jul 19 low
5549: 10dma
5562: Jul 8 low and 38.2% Retracement (Jul 16 high to Jul 19 low)
5583: 50% Retracement (Jul 16 high to Jul 19 low)
5622: July 17 high (gap)
5642: Jul 11 high (A)
5655: Jul 12 high (B)
5666: Jul 15 high (C)
