Technical Analysis: Warning Signs Appear

This bounce has already raised some red flags. For starters, the equity-only put-call ratio closed at a bearish .46 today on a day when the indexes didn’t even take out yesterday’s highs. That’s a lot of call buying for a modest bounce after a 10% decline. The S&P (first chart below) may have formed a bear flag in the 60-minute chart. Stochastics have already hit overbought in that timeframe, and the trend strength indicator ADX is turning down, indicating that the bounce may be corrective. The daily chart (second chart) shows 865 to be tough resistance, and 875 even tougher. 844-850 is first support, followed by 835 and 800. The Dow (third chart) faces tough resistance around 8125 and then again at 8250. Support is 7950-8000, 7850 and 7500. The Nasdaq (fourth chart) will open right around resistance tomorrow. If it can clear 1347, 1360 and 1380 are possible targets. 1320 and 1273 are support. The VIX (fifth chart), the options volatility index, fell hard today, taking out yesterday’s lows while the indexes did not take out yesterday’s highs, a possible negative divergence there.

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