First Move Out of the Range Isn't the Real Move

 | Aug 09, 2017 | 6:00 AM EDT
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Tuesday was an interesting day in the market. No, we haven't moved out of the range on a closing basis, but we did get a false breakout of sorts, didn't we? Let's go back to the chart of the S&P 500 that we looked at Monday morning.

The one thing all these tight trading ranges had in common was that the first move out of them was not the real move. Each time we had a fake-out first. In January, it was to the upside before we retreated back into the range and then went up. In April/May, the move was down first before we ramped upward. In June we had that midmonth move up and out, and then we gave it all back and more in the next two weeks.

On Tuesday, we had what looked to be a move up and out, but it was given up by the end of the day. For now, we remain in the range that we've been in for three weeks, but we got that shakeout to the upside first. I think we try to break the downside this month.

Then there is the chart of the Russell 2000 that I have had here a few times in the last week. Just about a week ago, I signaled the support at 1400 should give us a bounce to resistance, which I indicated was the underside of that broken uptrend line. I thought it would form the right shoulder of a head-and-shoulders top.

So far, that's the pattern that has been mapped out. But here again, Tuesday's decline did not make a lower low. It did not even take the Russell back to 1400 support. I do think it gets back down there and even attempts to break it. I would obviously be wrong if the Russell can rally up and over about 1430, or if it opts instead to simply go sideways between 1400 and 1430.

But when I consider that the VIX has mapped out the W pattern I have drawn in a few times in the last few weeks, it remains my bias that we see more downside in August (in stocks). Here again, I will be wrong if we do not see the VIX get up and over 11.50 sometime soon (the next week).

The McClellan Summation Index continues to head down. It will now take a net differential of +1,800 advancers minus decliners to halt the current decline. The last time we had an up day of that magnitude was June 1, so it's been quite a while.

Well, at least the market is oversold.

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