Important Low May Be Near, Though Internals A Concern

As we noted in last weekend's report:  "Right now, we are entering into must hold support around the 4000/3950 area. If this area holds, we still have a chance that this was a big shakeout and we have a move into new recovery highs next. Losing 3950/25 area would make me think we have much lower to go - maybe even a full retest of the June lows. At this point, this is not my favored outcome. I think we can find support somewhere around here and begin a move higher into 4120 area. And there we have a decision point - meaning we get above that and then use it as support. Or we face resistance there and collapse into the latter half of September. So we have a few possibilities here that I am watching for. I think we are getting close to a bounce of sorts - how the market reacts once we get to resistances above will tell us a lot on what next."

What actually happened was we tested the 3900 area on the Emini S&P 500 (ES) twice ... and so far are holding.

As we stand, price action is bearish short term, neutral to bearish medium term and neutral long term.  As noted, we took support in the 3900 area and began a rally into 4020 from there, but could not exceed that resistance area. We are back testing the 3900 area. This could just be a retest or we may have lower lows ahead on Tuesday.  I do not think we are going to collapse directly from here -- not without at least a bigger bounce first.  And I think we have a decent chance for an important low being very close in time.  Sentiment measures that I look at gave a double buy signal late last week. A double buy means buys on both short and intermediate timeframes. Last time we got a buy like this was near the June lows. 

On price we need to get above 4020 to signal that we have a bottom in place.  Internals still look ugly and that is a concern.  We need them to join the buy side before we can have a sustainable rally.  Without them, we will have failures like we saw on Friday.  Let us see if this changes in the coming week.

Grey zone resistance at 3956-77, 4002-18, 4062-80, 4113-32. Support is at 3922-03 and then the 3850/20 area.

For Tuesday, daily pivot is at 3953.  Resistance R1 is at 4000 and R2 at 4066. Support S1 is at 3886.5 and S2 at 3839.5.