Testing recent support at 1,990

End of Day Update:

Another tough day for the market, notching the fifth loss out of the last six trading sessions. Taken out of context, that sounds like a horrific stretch, but each loss has been so modest we are only down one-percent from all-time highs. Like everything in the market, there are two ways to interpret this. Bears will point to all the distribution, while bulls will claim how meaningless this distribution’s been. Which sides is right? That’s the million-dollar question.

Volume returned to nearly average levels since we came back from the holiday break. This shows institutional money is playing a larger role as we head into the busier fall-trading season. Even with the elevated trade, the market’s been successful at finding a buyer for every seller and we continue trading near the psychologically important 2k milestone.

While it is concerning buyers don’t want to chase prices higher, at the same time it shows owners are content and not taking profits. When owners don’t sell stock, supply remains tight, propping up prices. Markets typically retreat from unsustainable levels fairly quickly, so spending nearly two-weeks around the 2k level shows broad support from buyers at these prices. But what we don’t know is how deep this well of support is. Will we continue to find an ample supply of buyers ready to buy today’s 13-point dip? We will know the answer on Wednesday.

While Tuesday’s trade pushed us under recent support at 1,990, it didn’t trigger a larger wave of selling and we quickly bounced off of 1,985. The big test for Wednesday’s trade will show if this was yet another head-fake whipsaw around 2k, or the start of the next directional trade. If breaking support fails to trigger a larger selloff on Wednesday, look for the market to bounce back to new highs in coming days. On the other hand, continued selling shows we are running out of buyers and it will only be time before the weakness converts previously confident owners into nervous sellers.

Jani