That looks like a valid head and shoulders top pattern. The measured move for it should be around 2000. Both the breadth and the down side volume were over 90% today. We have not had one of those days since 6/20/13 during the infamous taper tantrum. New highs dropped down to 25 while new lows sky rocketed to 331. We broke the key support line around 2070 with a vengeance. TRIN came in at 1.9. That is a little short of the 2 level I like for a bounce, but pretty close. The real question is whether the 100 DMA support crowd is still interested in supporting that line. This is the first close below that MA on this pullback. That has been a buy signal for two years now. Will they show up again or was that them bailing out today? There is only 4 points down to the 200 SMA. A bounce without touching that would be a little suspicious since we are this close.
The futures are tying to hold the 5/7 overnight low. If they fail to hold here the next support level on the futures is down about another 25 points.
While we now have a short term oversold condition we also just broke down from a multi month H&S top. There is likely to be resistance up in the 2070 area now. A retest of the neck line area is a common thing to do. The VIX busted up through the resistance in the 15.50 area. Is this signaling the end of the ultra low volatility we have been having the last three years? Its too soon to know, but it is a possibility.
After such a violent day it is common to bounce the next day. However, internals were already weak before today so more down is certainly possible. Especially since we just broke down from a top looking pattern. I don't think there is a real big hurry to get long. The bulls have some work to do now.
Needless to say today turned all the short term trends down.
Bob
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