RECAP: Last week S&Ps were the most distributive I’ve seen in some time, certainly for this ongoing Christmas rally. It was strong-handed distribution, and not to protect against a couple of weeks or couple of percentage points drawdown. [Read the original post here.]
UPDATE: Monday produced a second consecutive lower close under prior lows, which in my methodology confirms the trend reversal underway. Which also allows a correction day, and that was Tuesday’s bounce.
Last week’s distribution pattern has resumed. Bouncing even higher overnight was reversed down sharply overnight. Bouncing sharply into the open was reversed much more substantially this morning.
Stopping optimistically short of touching Monday’s prior lows is potentially bearish from a contrarian perspective. Shallower bounces from strong-handed distribution should soon evolve into deeper breaks to fresh lows as sellers become less patient, and broader.
In my methodology, the bearish trend reversal can be invalidated by two consecutive closes above 2827 (basis June ES futures). My last update’s “caveat” remains valid, that it always seems darkest before the dawn. And, more on point, bull markets have a way of stepping right up to the brink, and then reversing straight up. Avoiding this precipice would suggest resuming the rally to much higher highs.

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Rod David
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