The US stock indices gave the sell signal alluded to in our blog post during the day session trade hours on Monday. The afternoon trade was dominated by persistent downside pressure with conviction not seen since the last quarter of 2012. This left a lot of “undeveloped” real estate to the upside with little market structure nearby to provide potential “resistance”.
Overnight trade in Globex may be helpful in defining potential areas above the closing day session prices that could act as resistance on any early rally during Tuesday’s day session. If the indices sell off significantly below the day session lows in Globex and remain weak as they head into the day session, be increasingly careful pressing the short side of the market until there is some retracement/rotation. Further selling in Globex followed by a weak day session open is a recipe for an out-of-the-blue sharp bungee jump that could signal a short-term stopping price in the decline.