Bony Bulls Inside a Trading Range Wheelbarrow

The market recovered some of yesterday’s losses.

However, all four indices had inside days.

The official definition of an inside day is “A candlestick formation that occurs when the entire daily price range for a given security falls within the price range of the previous day. Inside day often refers to all versions of the harami​ pattern and can be very useful for spotting changes in the direction of a trend.” Investopedia.

Traders interpret Inside day patterns as indecision in the market.

Sign up for our FREE newsletter
and receive our best trading ideas and research

None of the indices were able to break out higher or lower from the previous day’s range.

What I like about inside days, is that when instruments are trending lower, the inside day often means some short covering before resumption of the move lower.

We at MarketGauge think inside days are so important, we have a proprietary indicator that keeps track of them for all instruments.

Inside days are chart patterns. Yet, to gain a broader prospective, we will examine the usual macro factors:

The Modern Family, Phases, The Dollar, Commodities, Interest Rates and Sector Rotation.

Like our skeletal bull inside a wheelbarrow, will today’s inside days mean the bulls get even leaner?

Or, will they get some meat on their bones and grow stronger?

The Modern Family– Inside days in Semiconductors and Retail. (The Russell’s too). Biotechnology tested the 200 DMA (IBB at 108.37), bounced a bit but still closed red. Ditto with Transportation (IYT 187.10). Should SMH in particular, break Monday’s low, leaner bulls. However, also watch to see if IYT bounces further, particularly if it can clear 190.50.

Phases- The Family’s daily phases are unchanged. Also noteworthy, the weekly bullish phases are intact. Although IWM, QQQ, and DIA did not change phases, SPY improved to a bullish one. It needs a second day to confirm the phase improvement.

The Dollar– U.S. Dollar strengthened but still has to clear 25.00 (UUP) to keep going. The dollar put pressure on some agricultural commodities and gold. A strong dollar makes our goods more expensive.

Commodities– Mixed. Good rally in crude oil. Copper and Steel rallied. So did Sugar, Coffee, Wood and Corn. Soybeans, Silver, Cotton, and Wheat declined. We are still looking at the historically low ratio between equites and commodities. Global demand remains soft.

Interest Rates– A flattened yield curve is perceived as negative for the market. However, rates have eased for now (30+ year T-Bonds). Hence, that leaves that ultimate dilemma for the Fed (raise or lower) should commodities begin to move up or down.

Sector Rotation- Money came into Homebuilders (ITB) after positive earnings from Lennar. However, the chart looks heavy until it clears 40.00. Otherwise, no major rotation other than some shortcovering in Semiconductors while Regional Banks, Biotech and Transportation stayed red.

Given the inside day chart patterns along with the unconfirmed improved phase change in the SPY, also watch the dollar and the 30-year T-Bonds.

We will be looking for how the trading range reconciles, what the TLTs and the dollar do, and whether or not the SPY can stay above its 50 DMA.

S&P 500 (SPY) Inside day. 271.50 the 50 DMA pivotal.

Russell 2000 (IWM)Inside day. 166.50 resistance with 164.14 Monday’s low to hold

Dow (DIA) Inside day. 242.90 the 200 DMA pivotal

Nasdaq (QQQ)Inside day. 169.25 the 50 DMA support to hold 174 resistance to clear.


Twitter:  @marketminute

The authors may have a position in the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.