A key session for Wall Street

Today’s trading session should be absolutely key in determining the trade in US equities.

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Source: Bloomberg

Here, I have looked at the Wall Street cash (Dow Jones) where we can clearly see strong buying support coming at the November swing high and off extremely oversold conditions.

I assess ‘oversold’ by the fact the 9-day RSI (relative strength index) traded below 20 yesterday and to the lowest levels since August 2015. This in isolation is not a reason to buy the index, but it should play into the view that there was limited further downside in the sell-off. At the same time, the market internals had suggested a contrarian ‘buy’, with a mere 10% of stocks trading above their 10-day moving average. There had been excellent participation in the recent selling, but it seems the selling had also become a little extended.

A technical snapback in the equity market has been seen off the 18,000 and the November high (highlighted by the dash lines on the chart), seemingly driven by calming in US fixed income markets.

We are now at levels where price is re-testing the July to August trading range of 18,600 to 18,300 and this arguably puts the market at a key phase. Without giving a specific recommendation, trading the index is all about reacting to price action and letting the market guide you. If the index breaks back into the range today there seems to be a fairly high probability that the index will go onto and re-test the all-time high set on 15 August. However, a rejection from here could suggest the index is ready to push back through 18,000 and short positions will clearly be warranted. Look to add to shorts through 18,000.

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