Yesterdays sharp break down from compressions continues today and we now loo at the longer-term picture. There were a handful of weekly-scale compressions in US indices in May and those broke up leading to the rally that peaked in the first week of July. Prices have now dropped back to those compressions, which is where we expect support:. The prices shown are as of just after noon, US Eastern time, so the market has four more hours left of this trading day.
The crucial question is: Did the big turn due over this weekend come a day early and mark the start of the drop, or will the market make a low that should be bought? The timing supports either possibility as the drop started just before the turn date which comes today, the 1st or will maybe come on Monday the 4th. As the market has now dropped to support from these weekly-scale compressions, we suspect that the market is making a low hereabouts (or will do on Monday) and so we should get ready to buy. Some new daily-scale signal would be helpful here, but we don’t yet have one - it’s probably too soon for a bottom extension.
The crucial thing is that this support area holds. If it does not, a new level of panicky selling opens up and the drop could get worse. Watch these levels carefully and keep the powder dry. It may be worth trying to buy with very close stops, but be prepared for several attempts. Under no circumstances keep any longs if these levels fail to hold.
We assume that any longs moved their protective stops closer to the price yesterday and so are now stopped out, in both Europe and the US We wait; more over the weekend.