The charts below embody my current technical view of the U.S. stock market indices.
Chart 1. The Nasdaq Composite ($COMPQ) registered TD Sell Setup bar #9 on Monday, which is known to produce, at a minimum, a countertrend price reaction. Note that the most recent installment of the rally unfolded as an "AB = CD" zigzag that ran out of steam at the underside of the neckline.
Chart 2. The S&P 500 (cash) sports a comparable pattern to that of the $COMPQ in chart 1. TD Sell Setup bar #9 was also registered on Monday, an event that usually produces a countertrend price reaction, and sometimes a full-on reversal.
Chart 3. The S&P 500 futures (March) sold off overnight on the heels of the "TD Sell Setup 9" registered on Monday. Potential support areas are outlined in the chart, most notably 1940, roughly 10 points above the confluence of the 20- and 50- day moving averages. The significance of 1940 is further emphasized in chart 4 below.
Chart 4. The S&P 500 futures (March) market profile chart shows two distributions within last week's range. The overnight price action flirted with the upper distribution, and I fully expect the weekly vPOC of 1977 to be tested on Tuesday. However, a drop below 1971-70 would significantly raise the odds of continued downside towards the lower distribution. Support would then be at ~1940, followed by ~1930.
Chart 5. The Nasdaq Banking Index ($BANK). This one actually registered a new intraday and closing highs on Monday, as well as "TD Sell Setup 9", an event that usually produces a countertrend price reaction, and sometimes a full-on reversal. Tuesday's open is on down-gapping note, consistent with the weakness manifested by the major indices.
Chart 6. The $QQQ/$SPY relative-strength ratio index - The $QQQ began to underperform the $SPY as early as last Wednesday, potentially ushering in a risk-off period, i.e., a lack of appetite for beta/high-momo names.
Chart 7. The $XLU/$SPY relative-strength ratio index - "Flight to safety" took a back seat to riskier stocks in the S&P 500 and elsewhere, as outlined by the blue zigzag which found support at the rising 50-dma. Since the $XLU/$SPY ratio declined in "textbook" countertrend fashion (i.e., the zigzag) as the major indices rallied off their respective February bottoms, the compelling conclusion is that the U.S. stock market rally that played out in recent weeks is itself of the countertrend variety. We'll wait and see how things develop from here.
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