In the blog post of May 28 I showed a chart of three moving averages of NYSE advancing issues, and Breadth (NYSE). On Wednesday we saw Tuesday’s failed rally continue to fail, and Breadth closed at -2316. That is in the area of “oversold” (one of the two most dangerous market descriptions a trader can utter, the other being “overbought”). One striking characteristic of the bull leg in the stock indices from the December low is that they have not been able to generate anything resembling “washout” types of internal readings, something in the neighborhood of -2500. Another observation about the decline that began in April is that it has been a grind all the way down; there has been very little uncontested, overwhelming selling. This is one of the first occasions since the top that the market “feels” heavy. The Tuesday rally failed and the market tried an intraday rally in the afternoon on Tuesday that also failed miserable with the ES, YM and TF closing on or near their lows for the session.

The cavalry may come in tonight and save the day, but the washout is going to happen sooner or later. If the TF (Russell 2000 mini future) is trading above 770 when the day session begins the washout may be off the table for now.