At the moment, the current dip in the S&P 500 Index (SPX) looks more like consolidation than the start of something larger. The first sign comes from 7 day momentum. It’s moving back and forth across the zero line, but not getting extremely over bought or extremely oversold. The range on 7 day momentum is a bit wider than I’d like to see, but for now I’m considering it a constructive pattern. To add weight to the pattern the price of SPX is painting a bullish flag that generally resolves to the upside.
Breadth calculated between the number of bullish and bearish stocks is moving sideways again. This is due to both bearish and bullish counts falling. What the bulls want to see is the number of bullish stocks start to rise similar to the way it did during last January’s consolidation. What the bears want to see is a repeat of the July pattern where the bullish count fell and the bearish count rose.
Support and resistance levels generated from the Twitter stream for SPX show a hard barrier at 2100 and light support at 2040, 2030, and 2020. I suspect the market needs a push above 2100 before any sustained buying can occur.
Conclusion
I’m seeing signs of consolidation, rather than the start of a down trend. The important thing to watch going forward is the count of bullish stocks. If it can start to rise it should be a sign that the consolidation is ending.
