Technical Analysis: Another Gap And Trap

Another gap and trap today. At some point, one of these failed rallies is likely to result in a hard turn down; a lot of traders must be losing money chasing these overnight rallies. The one positive here is that the internals are in relatively decent shape, although today’s sell-off in rising volume was a negative. The VIX (options volatility index, first chart below) remains in dangerous territory, and barely budged on today’s steep sell-off. The equity put-call ratio was dangerously low during this morning’s rally, hence the sell-off the rest of the day. The bank stocks (second chart) appear to be forming a bearish rising wedge and got rejected at the upper trendline today. The Dow and S&P (third and fourth charts) were turned back at former uptrend lines today and ended the day at critical support levels. The S&P needs to hold the 875-876 level, and 900-911 is major resistance. The Dow has resistance at 8300 and 8350, and 8500-8522 is major resistance. 8130 looks like the next good support on the index if today’s low of 8233 doesn’t hold. The Nasdaq (fifth chart) has resistance at 1401 and 1420-1430, and support at 1375 and 1360.

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