An Inside Day of Pain

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MARKET WRAP UP 08/30/10

After the sharp reversal and rally on Friday, stocks sold off steadily today. Volume was the lightest of the year, indicating the lack of interest in late summer trading with conviction. Despite the fact that the S&P 500 closed on the lows, down 1.47% to 1048, the price action today was confined within the parameters of Friday’s highs and lows. This type of price action creates an “inside day,” which signals indecision. Despite how painful today felt for many bulls. the fact that we are seeing indecision after the steep downtrend from 1130 over the past few weeks could be a sign of a change in the short term trend.

As the updated and annotated daily chart of the S&P 500 illustrates below, the 1040 level continues to be the line in the sand over which bulls and bears are battling.

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Looking across the other major indices and sectors, we saw inside days across the board. The case for many double bottoms continues, as the defined lines of support become more pointed by the day.

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Finally, let us take a look at the semis. Many traders have been concerned about the recent weakness in that area. The daily chart tells the story of a steep downtrend since late April. Now, however, the semis are at the bottom of the multi-month falling channel, and printed a hammer-type of candle on Friday. After today’s inside day, there remains a distinct possibility for a change in trend.

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