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Stock's hovering above session lows

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For a second consecutive session, we're seeing morning action trade sharply lower in the early going, but then find stocks holding above early morning lows.

One "level" that may be in play currently is in the NYSE Composite (NYA.X) 465 -1.39% at our 19.1% retracement. Subscribers that have been following some of the Index Trader Wraps at OptionInvestor.com have perhaps noted how some of the other major market averages have one-by-one broken this level.

For many institutions, the NYSE Composite (NYA.X) is considered the "true" market. As such, not a bad broader market index for traders to monitor from time to time.

Yesterday we noted the NYA.X breaking a triple-bottom at 475, with a trade at 470. Bar chartists will note how the NYA.X seemingly found support at the 475 level in recent weeks where technically there may not have been any.

A trader will now turn to some of the work we've done in the past from the bar chart with retracement to perhaps understand current levels of trading. A bear using our retracement from this spring's highs (like we've done with the DIA, SPX, OEX, QQQ) will see the "stronger" NYA.X currently testing its 19.1% retracement.

What a bear would like to see at the close is a NYA.X close below the 464 level of retracement, to hint of a possible test of the 455 level, which marks a level near-the August 5th close.

NYSE Composite Chart - Daily Intervals

The thinking becomes... "if institutions are selling their 1,2 and 3-lettered stocks, the BIG money is still getting out."

Today's trade at 465 helps a point and figure chartist understand that a "bear trap" pattern for the NYSE Composite is now in the past. This isn't an observation that bears can be complacent, but is an observation that further downside over the next couple of weeks becomes further likely.

The current bearish vertical count for the NYSE Composite now grows to 430, which is very close to July's closing low of 430, marked by our retracement. This vertical count is NOT a guarantee that the NYA.X will trade that level in the future, NOR is it a guarantee that the 430 level won't be exceeded. However, look for bears to grow further bearish, and leveraging off the 465 level on a short-term basis (4-days or less), 50-day SMA $483 (2-weeks or less), and the 500 level (next month). In essence, each upward level just noted could be understood as risk levels for various time frames that traders investors are willing to hold bearish trades for.

A trader looking out more than one-month and risking a move to 500, must be targeting the lows.

Current action remains negative and a defensive posture is warranted. Last night, the NYSE Bullish % ($BPNYA) from www.stockcharts.com was at 40.08% and very close to the 40% reading, which would have the bullish % reversing lower and back into "bull correction" status. In early June of last year, this bullish % also reversed back into "bull correction" status when the NYSE Composite broke a spread-triple-bottom at 555.

Jeff Bailey
Senior Market Technician
Option Investor

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