Submitted by Nic Lenoir of ICAP
There are a few interesting developments today. On Tuesday we pointed out that there was not enough short-term divergence in S&P or Nasdaq futures to consider shorting them. But a no volume spike on the holiday yesterday took care of that. We need to see a little bit of follow through on today's sell-off to confirm we are going back down to test 1,025. Here are a few solid elements to look at which point in that direction:
Dax futures have failed twice to bypass the former support of the bullish channel now resistance. The chart says it all.
Similarly Nikkei futures have failed to break back above the former support. A break of 9,600 would open the way to more significant downside.
The Russell 2,000 came back to test the 50dma as resistance and failed to close above it as well, and the 21-dma and 50-dma posted a bearish cross right on top of the index, which in theory calls for more weakness.
As long as these 3 resistances are in place the dynamic from here should remain bearish.
It is worth noting also that the dollar index has bounced hard from the year's lows made yesterday in no volume and with strong divergence. We could expect to retest 76.81. Note that on a break there we would trigger a double bottom that would catch more than one short the wrong way. Asia central banks were spotteed today support EURUSD, but with little success other than stalling the fall for now. The night session should prove decisive if they lift the market in more size. We are also at a key level in oil, where crude futures could show dignificant downside on a break of 76.45. This would imply a new 20-day low which would probably stop out the trend followers out there.
Good luck trading,