Bottom Line:

US indices remain relentlessly bid. Thursday’s dramatic reversal brings the immediate trend into question, but that decline was substantially retraced on Friday.

The simplest and surest way to stay on the right side of a trend is to follow price action. Note I did not say “easy”. However, presently it is about as easy as it can get in identifying downside levels that if broken are initial signals of a “correction” of some relative significance.

To the upside, with the exception of the Russell 2000, there is very little from an Auction Market perspective in the form of resistance until all-time highs.

The technical picture remains out of synch with the torrid rally so far this year.

PDF: Weekend Report_2023_07_30
VIDEO

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Let’s begin this week by looking at the “Market Profile” perspective of the SPX and see what clues it may be giving us as we head into another month.

Below is the quarterly profile perspective. Each letter represents one week, each “unit”, one quarter.

We will complete one month of the current quarter (July) next week, so there is a lot of time left in this particular “Auction”.

The Auction Market Process of Development is in effect in all degrees of time all the time, so there are certain things we can expect. The primary thing we can expect is the 3-step development process: 1) Trend, 2) Stop, 3) Develop, and then repeat. All Auctions will have areas of relative value, with most trade occurring in an area representing a consensus of value. This forms a pronounced node on the profile chart.

The current quarterly Auction has an incomplete, undefined structure – it is still in development. It is likely still probing for its completed distribution range, implying extension above or below its current extremes.

We must never forget the true market Auction cannot be chronologically contained, and the profile graph must be used to identify the “real” Auction. Below is the present quarterly, chronologically defined view from a “Market Profile” perspective.

In the current case the third quarter Auction in which the SPX is currently trading is clearly part of the distribution phase (trend) that began in the second quarter Auction.

The practical implication of this is that the SPX is in a distribution phase (“distribution” as in range establishment). This phase of development will always result in finding an upper extreme that will “stop” the rally. What will then follow is development back into that range and the establishment of a consensus area of Value. Also, the longer the SPX continues in this phase of Vertical Development the more likely it is that present price levels will be revisited at some point during the Step-3 phase of development. Potential paths are highlighted on the chart below. The path highlighted in Red would be a blow-off to the upside. The path highlighted in Green would be a more typical scenario.

 We can go down in timeframe to help fine tune our analysis. The Auctions below are monthly Auctions, each letter represents one day of trading and each profile unit is one month. It is clear the July Auction that completes next week has formed a “mature” Balance Area in the upper half of its distribution range. A breakout will follow. An upside breakout could easily ultimately result in new all-time highs. The area near 4500 has to hold under any immediate bullish scenario.

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RUT

Weekly

Daily

Upper KRA: 1994; 2005-2030
Lower KRA: 1949

NDX

Weekly

Daily

Upper KRA: 15928
Lower KRA: 15387

SPX

Weekly

Daily

Upper KRA: 4608
Lower KRA: 4527

DOW

Weekly

Daily

Upper KRA: 35646; 36827-36971
Lower KRAs: 35208

Internals

Same story. There are numerous divergences between price and breadth but they have yet to matter.

SPX 30m / Breadth

Still consistent with a bull trend.

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US 10-yr Notes

Consider favoring shorts.

US Dollar

No change: So far, just an expected bounce. The trend is down.

Gold

Between levels but consider giving the benefit of the doubt to the upside.

Crude

Between important levels.