August 25 Market Wrap — A 1-day rally makes a bullish week

Week's Market Stats

Friday's Market Stats

Monday's consolidation was followed by a strong rally on Tuesday which was then followed by three more days of choppy consolidation. Trading volume for the week was low, including Tuesday, and it seemed the market was waiting to get through the Jackson Hole meeting to see if anything new came out of the meeting. There was nothing new so maybe we'll see the market pick a direction in the coming week.

SPX daily chart

The last three days of the week we didn't see much happening in the market and the price pattern doesn't help much in the determination of the next likely move. Sticking with the daily chart of SPX we can see Friday's rally attempt was stopped by its downtrend line from August 8th, which keeps the downtrend intact, and it closed the week below its 50-dma after trying to rally above it. Four attempts last week to get back above its 50-dma and four failures. Obviously that's not bullish. So the downside continues to look more likely but one could argue that the consolidation following Tuesday's rally is a bullish continuation pattern. We're waiting for the market to let us know. I'm still short SPX with a stop at 2455 on a closing basis and waiting to either get stopped out or add to it on a breakdown.

NDX daily chart

The picture is no different for NDX, which remained trapped between trend lines and moving averages. Four attempts to get back above its 20-dma and four failures. But the bears were unable to break support at the 50-dma and Friday's close was only marginally above it. Resistance held again on Friday at its broken uptrend line from June-November 2016 and support held again at its uptrend line from June 2016 - July 2017. It's winding up for a big move and while I think it will be to the downside, there aren't quite enough clues to say that with confidence.

RUT daily chart

The RUT was again slightly stronger than the other indexes on Friday and as I had suspected in last weekend's wrap, it had a stronger bounce than the others. I thought we'd see a minimum of 1380 for its bounce and Friday's high was 1380.60, right up to its broken 200-dma. With its broken uptrend line from March 27 - May 18 only 2 points higher on Monday I think there's a good chance for at least a pullback before possibly bouncing higher. The bearish potential is for the decline to kick back into gear and lead the way lower again.

Conclusion

The short-term intraday patterns for the indexes leave us hanging as far as determining the market's next direction. If we get a gap up Monday morning and the rally continues we'd have a market signal that the bounce will at least get bigger before turning back down. The more bullish possibility is that the rally will continue, perhaps in a choppy fashion in an ending pattern, and potentially to new all-time highs for some of the indexes.

The daily charts show new downtrends established and the market's inability to break through resistance last week. Considering the time of year and what looks like a vulnerable market I continue to lean to the short side but not aggressively yet. I think Monday's direction will set the tone for the week and we'll follow the market from there.

Have a good weekend (we're running out of the summer ones).

Monday's pivot table