Daily update 10/7

It is about to get interesting now.  Here is the daily SPX chart.

The intermediate trend indicator turned down today.  It still needs confirmation with a lower close tomorrow.
Today was the lowest close in this pullback so far and below the 50 SMA again.  The 100 SMA and the lower trend line come together at about 1662.  That looks like the next important support level if we continue down.  Breaking below that area makes a trip to the 200 SMA likely.  Lets zoom in to the SPY 60 minute chart.

We have a clear down trend line that has formed since 10/1.  I put in a parallel line at the lows in case we are starting to form a down trend channel.  I don't know if that is valid just yet.  However, the upper line has been well tested so a break out that sticks should be a good sign the pullback is over.  The bulls had SPY above the 50 SMA and above the trend line at the close on Friday, but could do nothing with it.  The dip buyers came out again this morning to buy the gap down, but by the end of the day SPY turned down pretty sharply again.  The volume pattern is still showing a lot of big red bars indicating distribution.  That has been prevalent ever since the Sept. high.  Lets take a peak at the daily VIX chart.

The VIX climbed above the Aug. high today even though price is still well above the Aug. low.  A little fear is entering the market place now.  The number of new highs dropped under 50 for the first time in this pullback.
That shows the bulls are losing their conviction a bit.

The stage is set now for a big move.  SPX closed under the 50 DMA, VIX spiked up and new highs dropped.  We are either making a low right here to retest the high or we are going to accelerate down.  One thing we do not have is an oversold market.  The sideways price action this month has made sure of that.  With Washington not even talking about a deal that is an unlikely catalyst to the upside.  That leaves us with earnings.  If the market is going to rally from here I think it will be for the earnings.  However, that could also be the catalyst for the down side.  The selling has been concentrated largely in the big cap stocks that are the most susceptible to the global economy.  The 2nd quarter saw a global surge in interest rates that did not reverse in Q3.  Has that caused some earnings problems?   We will find out over the next few weeks. 

Chart practice has been updated with WDC the stock tonight.
http://traderbob58-chart-practice.blogspot.com/

Bob