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Minor Blip Ahead of More Weakness
By Mike Paulenoff, MPTrader.com

Today turned out to be an interesting day largely because the E-indices managed to hold right at yesterday's lows and have been grinding out several hours of stability and upside. The upside as compared to yesterday, though, is very minor, somewhere around 30% of yesterday afternoon's smash to the downside. The indices have recovered at this point. If you're looking at it as if yesterday's plunge was a continuation of a larger topping process, then today's recovery is just a minor blip on the screen ahead of more weakness. That is exactly what my technical work is telling me.

In the E-mini June S&P you had a low yesterday of 1113.25, and today's low so far is 1114.25. So on the S&P side of the ledger, you haven't made new lows. The rally in the S&P has gotten up to 1124.50, which is somewhere around 40% of yesterday's late smash to the downside from 1138.50 to 1113.25. So give or take 2-3 points, somewhere around 1125 would be 50% of the recovery point, and my work is telling me that it should roll over in and around that area, perhaps in the last hour of trading, and we should get another bout of selling pressure.

My target on the downside is still 1111-1108 in the June S&P. A move above 1126-27 would start to suggest that this countertrend rally is picking up a bit more power than I had envisioned.

In any case, based on yesterday's move, I think we've started a new downleg and it's not done yet. I think that Thursday and Friday of this week will be extremely important because if the downside resumes, then the markets will look very precarious going into Friday's action.

First things first, though, let's see what happens in the last two hours of trading today. Right now our direction work is telling us to be prepared for more downside.

With regard to the QQQs, the patterns carved out by the Qs today, even though they have not made new lows, suggest to me that it's all countertrend. After this sideways range action between 36.65 and 36.10 is finished, we're going to see another sharp decline. That sharp decline should take us to new lows below yesterday's low at 35.63 into the 35.20-.10 area.

Only a move above 36.25 would argue that this countertrend move still has more steam on the upside probably into the 36.50-.60 area. But for now our work is still pointing south towards the end of today's session, and we should see a sharp decline at that point.

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