So, we hate to keep issuing these Trading Flashes, but given the stock market action since Wednesday 7-31-19 it seems such comments are warrened. Indeed, the S&P 500 (SPX/2883.98) was changing hands on 7-31-19 at 3017.19 and we were cautious believing the market was overbought and had run into an overhead resistance zone. That said, we though any pullback would be mild and likely contained in the 2940 – 2960 level. Boy was that a bad trading call as the SPX fell into last Monday’s intraday low of 2822.12 for a 195-point plunge, or a ~6.6% decline. Subsequently, last Tuesday we issued a Trading Flash commenting:
And for all of you that asked me about a stock market “crash,” markets almost never crash off an all-time high. They typically have a return move towards that all-time high where it then becomes “kiss and tell time.” This morning, because of the renminbi’s favorable reset, the ESUs are up some 26-points. However, the “fair value” is about 15, which implies the SPX should open 11-points higher. As stated, “I would not trust the first rally.” Indeed, I know old traders, and I know bold traders, but I know no old and bold traders.
And that, Ladies and gentlemen was a good call as the Dow declined some 589 points causing the SPX to tag an intraday low of ~2825 yesterday and then rallied. That chart pattern sure looks like a double bottom especial given the fact that last Monday appears to have been a 90% Downside Day, which tends to be a “capitulation low” and it how bottoms are made. Speaking to double bottoms Investopedia writes:
A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action. It describes the drop of a stock or index, a rebound, another drop to the same or similar level as the original drop, and finally another rebound. The double bottom looks like the letter "W". The twice-touched low is considered a support level.