After yesterdays sharp sell off the question now is... have we seen the lows for this pull back? Or is more downside ahead?
Late last week I noted the odds for a pull back were increasing. The FED day last Wednesday saw the S&P500 hit a new record high, followed by an afternoon post FED swoon.
Rate cut hopes were dashed, or at least pushed back... for now. The market wasn't very happy.
Sunday Nights surprising Trump Tariff tweet helped spark another sell-off. Despite a strong recovery on Monday, the market rolled over yet again yesterday.
Levels that I have been highlighting the last few days as likely resting places for this pull back have been hit... a lot quicker than I expected.
Yesterdays $QQQ $185 level came
. The $SPY came back to touch prices it hasn't seen in over a month.
Weeks of carefully constructed upside gone in just a handful of trading days.
I talked yesterday about how small caps, have been lagging. They looked ready to break out late last week and on Monday... only to come crashing back down yesterday.
I think we could be looking at another channel support test for $IWM.
$IWM
Which means I think $SPY, $QQQ, $DIA are all going to head further south over the short term.
Again I'm still bullish on this market. But clearly momentum has shifted. The VIX rocketed higher as I thought it would.
Heading well over 20 yesterday.
Odds are the VIX will remain elevated for the short term at least, which means the risk for more downside is high.
Where will the selling stop?
One clear buy signal has been the same momentum shift that we saw before prices began to fall. The same momentum shift triggered near the lows this past December.
i'll be watching for it. Not to say the market won't get relief rallies. We saw exhibit 2A of why its tough to be short this market late yesterday.
The $SPY rallied $3.00 in 15 minutes.
However you don't find moves like that when the markets are grinding higher, as they have been for most of 2019.
With that being said I think we are going to see more downside in the days ahead.
Where it stops I don't know, but I will have a good idea when momentum shifts back for a positive move.
I will say, one thing to watch for is a repeat of early 2018 and late 2019 sell-offs.
This is certainly a scenario we could see over the next few weeks, especially if the trade war with China escalates further. Throw a few other excesses to sell into the mix and viola the bears have nailed it again... and just maybe the odds for a FED rate cut will increase, helping to lend a hand for that ultimate move to yet another set of fresh record highs and $SPY $300+ later this year.