“Market internals are weakening… this is to be expected if they have a date with destiny, a decline.
For example, Monday’s NAZ and SPX rally was accompanied by negative breadth.
There were more shares declining than advancing.
In addition, 76% of up and down volume on the NYSE was on the downside, versus just 24% on the upside.
Despite the headline-grab in the NAZ marquee names, Monday was a stealth distribution day.
Additionally, yesterday’s last hour saw the put to call ratio decline to its lowest level since February 19 — the day the SPX topped.
It’s not just sentiment that is frothy — investors are betting nearly as heavily on stocks continuing their advance as they were at the top.
It’s ok to dance in the bar while the music is playing, but one must have their eye on the coat rack.”
I wrote the above in Tuesday morning’s report.
The internals, combined with the externals, the price action to set up a pattern akin to a trap door, which was open and simply waiting for the market to fall in.
Checking a 10 min SPX shows the index ‘fell in’ early on the session and then sautéed the setup going sideways until it accelerated in the last two hours.
An Opening Range Break tripped the Trap Door downside setup and we alerted subscribers to take TZA long.
Early in the session, we had flagged a projection to 2900 SPX.
When SPX broke, the market accelerated.
If the market continues to fall through the Trap Door, it will likely point the way to a decline into Friday’s option expiration.
The trap was laid by the rally last week.
Allow me to explain.
Often the Thursday/Friday the week prior to a monthly options expiration (this Friday) is a Miss Direction Day.
Downside follow through today underpins the idea of an agenda to the 280 SPY strike to the 275 SPY strike.
“They” say the market can’t be timed, but the following hourly SPX shows the first hour yesterday actually telegraphed Turnaround Tuesday.
It was a large range outside down hour that also triggered a short-term Rule of 4 Sell signal.
This is a break of a 3 point trendline.
Range precedes price and Tuesday’s first hour reversal cast the die for the day.
Breakage below 2850 should see downside acceleration.
Notice how the SPX accelerated through Friday’s open gap.
There is also an open gap from last week in the 2840 region.
Below 2840 opens the door to 2790-2800, which is the big 50% retrace of the entire 2020 crash.
Will the market be magnetized to this region on the “Sell In May & Go Away” monthly options expiration?
The open gap at 2840 also ties to the 20 day moving average, which currently resides at 2850.
The 20 day moving average hasn’t been tested since it was reclaimed on April 6.
The normal expectation is that the FIRST test of the 20 day moving average should act as support.
I call a test of a rising 20 day moving average a Holy Grail buy setup.
This is because of its efficacy in usually (not always) defining pullback buy side entries.
However, a failure of the 20 day moving average to act as support would be a “Grail Fail.”
If the 20 day fails to act as support, especially on this first test, it will underscore the idea of a Trap Door sprung for the May option expiration.
Trade below Friday's Damn the Jobs Numbers Torpedo rally which occurred in the SPX & NAZ points to this idea of a Trap Door setup being sprung.
In other words, Friday was a Bad News Bear Squeeze.
Let’s look at the pattern through the lens of the NAZ, where the growth glamours we traffic in reside.
The NAZ has been the leader vaulting above its 200 day moving average on April 28.
In contrast, the SPX is still below its 200 day moving average.
This is a conspicuous divergence.
Turnaround Tuesday saw a key reversal in the NAZ from a recovery high.
It was a new high for the rebound with a close below the prior day’s low.
Notice that Tuesday’s NAZ reversal came from the region where the crash started, the Breakaway Crash on February 24.
Like the SPX, the NAZ hasn’t tested its 20 day moving average since it was reclaimed on April 6.
My expectation is that the 20 day will be struck. The NAZ is perched on a 3 point trendline from early April.
It may back and fill and see a rally attempt, but breakage below the Tuesday low will violate this 3 point trendline opening the door to the 20 day moving average at 8722.
It closed at 9002 on Tuesday.
It looks like a pay me now or pay me later play to the 20 day m.a.
Conclusion. Many leaders left signal reversal bars on Tuesday.
AAPL left a Gilligan sell signal from the February’s open gap
A Gilligan is a gap to a new 60 day high with a close at/near session lows.
Coming from February’s open gap is a logical place to expect a turn.
CRWD left a large range Lizard sell signal (a new 10 day high Topping Tail).
ETSY left a Key Reversal Day.
ENPH left a combo Gilligan and Lizard sell setup.
QDEL left Train Tracks.
SHOP left a Gilligan sell signal.
To mention a few.
That said, my 4 Horsemen, TWLO, COUP, OKTA and MDB held their own.
Their action into Friday will be important to gauge.
