Where next for US equities?

Where next for us equities? This is the question exercising many investors, and whether we are now witnessing the start of a longer term bear trend. The daily charts for the YM emini, the NQ emini and the ES emini bear a remarkable similarity so I’ve simply taken one of these, the ES emini, as it is more representative of the broader market.

And three aspects are instantly clear from the daily chart. First, the fact we are trading within the extreme down volatility candle of early August, and until the high or low of this candle has been breached, expect to see more of the current same sideways price action.

Second, we have two strong regions of support and resistance with the volume point of control sandwiched between. The ceiling resides at 2948 and denoted with the red dashed line of the accumulation and distribution indicator, whilst the floor of support sits at 2820 and denoted with the blue dashed line.

Third, note the decline in volume on each rally following the savage down day. And the clear anomaly here was the price action and volume associated with the 8th August. The price rose dramatically, yet the volume was mediocre when compared with other up volume candles and insufficient to drive the market so aggressively. Therefore, it was no surprise to see the index sell off, before rallying once more last week. However, note once again, the volume of Friday, not anomalous, but falling from Thursday’s price action and once again suggesting weakness.

However, the key now the resistance overhead which is likely to come into play once again at 2948, and for equities to rally further, this will have to be breached with rising volume, and simultaneously clears the volatility candle. And even if it does, there is a high volume node on the vpoc histogram from 2950 through to the well defined ceiling at 3020 which will slow any progress.

These two aspects will then dictate whether the rally can continue, or whether we are set for further congestion around the volume point of control at 2870. Finally, note the transition in sentiment for the trend monitor indicator which is now firmly bearish.

By Anna Coulling

Charts from NinjaTrader and indicators from Quantum Trading