The U.S. stock market stepped back from the cliff’s edge with a key reversal Wednesday. For today, the real question is “What’s next?”
Let’s explore with the help of three charts.
Please click here for an annotated intraday chart of S&P 500 ETF SPY, +1.47%.
Please click here for a second annotated daily chart of S&P 500 ETF.
Please click here for an annotated chart of iShares 20+ Year Treasury Bond ETF TLT, -0.84%. For the sake of transparency, the second and third charts were previously published and no changes have been made.
Note the following:
• The first chart shows a key reversal. This is positive and, in traditional technical analysis, it means a rally is ahead.
• The first chart shows that the VUD indicator stayed mostly orange during the strong rally from the lows. The VUD indicator is the most sensitive measure of net supply and demand in real time. The indicator staying mostly orange during the strong rally indicates that there was more supply of stocks than the demand for stocks. The market rose because buyers were significantly more aggressive than the sellers.
• The behavior shown on the first chart of a key reversal accompanied by a negative VUD indicator means that more likely than not a subsequent rally may fail.
• The second chart shows that The Arora Report gave four signals before the drop in the stock market. One of the signals was to short-sell the Nasdaq 100 ETF, or for aggressive investors who could not short sell, buying leveraged inverse Nasdaq 100 ETF SQQQ, -4.98%, which goes up when the market goes down. The other signals included increasing hedges to protect portfolios, and taking profits on select positions including China and Japan.
• The second chart shows the second support zone. So