Market Conditions

The Standard & Poor's 500 Index opened at 1178.33 It made a low of 1175.82 and a high of 1183.56. The close was 1178.59.

Today was an inside day, a relatively rare event in the marketplace. An inside day occurs when the low and high of a day's price action are contained within the high and low of the previous day. Yesterday, the high was 1194 and the low was 1173. What does this mean? It means that the price is quietly consolidating before the next major move. It doesn't tell us whether the next move will be up or down. We just know that the next move will be greater than the price range today.

Professional investors and traders see inside days as days of opportunity. They will buy if the price tomorrow exceeds the high of today (1183.56). Conversely, they will sell if the price tomorrow exceeds the low of today (1175.82). Because inside days are unusual and rare, the pros love an opportunity to profit from a burst in short-term price action.

No one can predict how the price will break out of today's trading range. I wouldn't be surprised if the price bounced up and hit resistance @ 1207. If the market did bounce up to 1207, that would be a shorting opportunity. (A shorting opportunity means you would position yourself for a further drop in price.) The bounce up to 1207 would also tell me that the downside will be limited. When a breakout fails (and the breakout on November 5 has failed because the price has dropped back below the former high @ 1219), there is always a sense that the drop could really accelerate to the downside. This anticipation would make sense if yesterday's gap down held. However, if the gap down closed, then I would know that the downside would be somewhat muted.

If the price breaks down below 1175, I would be surprised in that the market is already oversold on a short-term basis(see the 1-year chart of the S&P 500 Index @ clearstation.com). A break below 1175 would probably travel below the 50-day moving average and stop @ 1158 or so.

Anyway, we are in a waiting period right now. Lower prices are ahead, whether they come sooner or later.

Have a good evening!

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