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Gloom Permeates as Stock Market Nears Short-Term Downside Exhaustion

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The Drudge Report this morning has the following box, labeled Gloom, right in the center of the page.



Hindenburg Omens. Dow 5,000. Cramer: Very Negative.

Meanwhile, some of the technical indicators I follow are approaching short-term exhaustion levels.

Looking at various market indexes with DeMark TD Sequential overlaid I find the following: Daily TD Sequential Buy Signal for the Russell 2000, possible TD Sequential Buy Signals today for S&P 500 and Nasdaq-100.

What is TD Sequential? TD Sequential is comprised of two main components: setup and countdown. IT seems complex, but the principles are actually very simple. The setup phases consists of nine consecutive closes that are higher (for a sell setup) or lower (for a buy setup) than the close four bars earlier. Essentially, this is the momentum phase of the TD Sequential observation. If you consider what a chart would look like with nine consecutive closes that are greater than the close four bars earlier, you can get a picture in your mind of what a momentum phase for a security looks like. All TD Sequential buy and sell signals MUST have the setup phase to proceed to the next phase, the countdown.

The countdown phase, in the case of a buy countdown, is a series of 13 closes less than or equal to the low two price bars earlier. Note: these closes DO NOT NEED TO BE CONSECUTIVE. While setup requires consecutive closes greater than the close four bars earlier, the countdown phase not require consecutive closes. It simply keeps track and counts as long as there is not an INTERVENING setup in the opposite direction. A full countdown to a TD Sequential Buy Signal 13 means the market is approaching a low-risk buy area.

These signals are active for 12 bars following the 13. That's not the duration of the signal, it's just the length of time given to allow a reaction off the 13. Those who are risk averse sometimes also add a requirement that after a 13 buy signal has recorded, the market produce a close greater than the close four bars earlier, which obviously has not yet happened.

As you can see, with these signals likely to record on the indexes today, and the potential for a sharply lower close, a confirming close that is greater than the close four price bars earlier will be much easier to achieve this coming Monday when we compare Monday's close to today's to see if we can generate a confirming price flip.

S&P 500

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Nasdaq-100

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Russell 2000


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POSITION:  No positions in stocks mentioned.
TICKERS:  NYSE:SPY, NASDAQ:QQQQ, NYSE:SPX   

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