Schwab Live: Midweek Market Trend for October 26, 2016

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The S&P 500 has basically gone nowhere since mid-July and has established a trading range with support around 2120 and resistance around 2190 (Figure 1).  The last test of the support level was on October 13th when the market reversed strongly and formed a hammer candlestick (A).

Source: StreetSmart Edge®

 A Hammer is characterized by a small Real Body near the top of the price range for the day. The Hammer has a long Lower Shadow and an Upper Shadow that is very small or non-existent and can be a potent short term reversal signal especially when it forms near a support level.  There is also Fibonacci support in the area between 2117 and 2120, representing a 38.2% retracement of the up move from the Brexit bottom in June Figure 2). 

Source: StreetSmart Edge®

Another indication of just how range bound the market is can be seen in the sector action.  For the last month, the S&P is down 1.01% as of this writing (10/26/2016) Figure 3 (A).  With six sectors are up (B) and five down (C) it is no wonder that the market has not made much progress. The good news is that the sectors which are up, like information technology and financials, are more offensive in nature, while the laggards such as utilizes and staples are more defensive.

Source: StreetSmart Edge®

Within the financials, the banks have been acting well and have just broken out of a symmetrical triangle continuation pattern (Figure 4).

Source: StreetSmart Edge®

 Investment service firms are also showing good relative strength (Figure 5) (A) and have been making a series of higher lows and higher highs over the last month (B).

Source: StreetSmart Edge®

Within technology, the internet stocks have been leading and made a new high on October 25th (Figure 6.)

Source: StreetSmart Edge®

 It will be interesting to see if the semiconductors can join the internets at new highs soon (Figure 7).

Source: StreetSmart Edge®

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