Today 10/11/22 the S&P 500 (SPX) joined the Nasdaq Composite in making new bear market lows. The SPX support break invalidates the Elliott wave – Expanding Flat formation noted in the “Elliott Wave Alternate Bullish Interpretations – 09/30/22” blog. The door could now be open for a rapid one- or two-week SPX drop to the 3,200 area. However, momentum evidence indicate US stocks are struggling to go lower.
The daily SPX chart courtesy of Trading View illustrates external momentum.
Daily SPX – MACD has a bullish divergence on the Histogram and lines. RSI has a double bullish divergence and Stochastic has a bullish divergence.
Internal momentum as measured by 52 – week New Lows and net New Highs minus New Lows continue to have bullish divergences.
The daily VIX and Put/Call ratio still have bullish sentiment divergences.
The 15 – minute Russell 2000 (RUT) and SPX charts illustrates the continuing divergence between these two indices.
The RUT is an index of small cap stocks. Smaller companies are much more sensitive to economic weakness than larger companies , its logical to expect them to be leading the way down in a bear market.
Not only does RUT have a bullish divergence at the daily level, look at what happened intraday on 10/11/22. Early in its session the SPX low of the day was made at 3,568.45. Late in the session SPX tested the low – reaching 3,568.65. However, the RUT late session low was significantly above it’s low of the day.
The release of the US Producer Price Index is on 10/12/22. Why aren’t fund managers holding small caps stocks not aggressively selling ahead of a potentially bearish report? Maybe they know something we don’t.
There’s a great quote in the book “Mind Over Markets”
(Which way is the market trying to go?)
(Is it doing a good job in its attempt to go that way?)
US stocks have been struggling to go lower. Since mid – June 2022 the SPX has made only marginal downside progress. It’s taken seven trading days for the SPX to break its 09/30/22 bottom.
All of this could change on 10/12/22. Not only is the US Producer Price Index being released at 8:30 AM – EDT, also at 2:00 PM- EDT there’s the release of the prior FOMC meeting minutes. Both could trigger a large move down in US stocks.
Mid to late October has seen very large and steep stock declines. On 10/12/22 the bears have a chance to start a one or two week drop of at least 10%. We will soon see what they can accomplish.