I am not a believer in the market rally today and believe that the pullback off of 1,700 is not over. Why? There’s a lack of excitement behind today’s move. The move higher wasn’t the result of a big gap up and there was no panic buying at open and a 10 handle move right away in SPX. Those may seem like obscure talking points but when you look at the last SPX bottom (June 24th-June 25th) you can see what I’m talking about.
While the 1% gain in XLF today is good to see, it has a ways to go before matching the 1.8% gain posted on June 25th off of its June 24th low. The same applies for SPY. Today’s rally isn’t up to par with the 1% gain posted on 6/25. Moreover, 6/25 saw a significant gap up in the futures, indicating strength from overseas buyers where as today’s move has been made primarily during the cash open. In addition to the difference in price action, there’s also difference in volume that doesn’t bode well.
During the 4 day losing streak that took SPY to its 6/24 low, its 10 day volume average was 222 million shares compared to yesterday’s 97 million. This is a huge red flag. We need high volume on dips (as has been the case the last 4 years) to indicate that high supply is being met with adequate demand to form a bottom. The most recent pullback has shown that low supply (comparably speaking) is being met with even lower demand.
From both a price and volume perspective I believe it is clear that this pullback does not contain the 2 key qualities that come with significant bottoms: high supply and high demand (high volume) and enthusiastic/whippy price action (big gap up/ monstrous rally/hard move off of a low). That’s why I’m net bearish on the market. As for a reference point though this bounce could still continue towards 1,680 and still be considered bearish. Reason being is that that was previous support so as long as it now acts as resistance my bearish thesis remains in tact. A spike in volume is needed to change my mindset.
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