Market Internals 2011-08-03

Since last update we have witnessed the stronger drop in daily level in 12 months time. Well, flash crash does not count. =)

We nailed the selloff.

ES is now standing at the do or die level of 1250. It has broken below that and closed below 1250 area.

This is the showdown point because S&P 500 is now net negative for the year. This is the first test of previous year close.

Normal first reaction to a test like this is a bounce of 20 to 30 points. But it is not normal condition at the moment as rating agencies just came out to re-affirm US rating BUT maintaining negative outlook. That put a spin of renewed uncertainty to the market. It is 3rd time ES testing this zone this year.

As you can see in the STOPD Visual. 1250 is the absolutely last line of defense. If ES can spring back above that to close above 1250, then based on 3-day advance issues oversold reading we can get at least a short term bottom either later today or tomorrow.

Notice Tick16 Long Term stays negative but not much more worse off from last week. Tick16 Short Term clearly not flushing down. That means a turn back up from here is a very strong divergence low based on Tick16.

If ES however, slide to next lower price level first at 1220 to 1230 area these 2 days, the bounce will be capped at prev year high/close area for potentially another leg down.

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