Oil Breaks Down

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This is the last post of the week unless something really significant happens. Have a Happy Thanksgiving.

The S&P fell by less than 0.1% on Tuesday. The breadth ratio was negative by 8:5 and up/down volume was positive by a 3:2 margin. Volume fell slightly from Monday’s level and remains below both four billion shares and its 21-dma. The daily Coppock Curve now has a negative bias versus 18 of the 24 S&P industry groups.

Yesterday, we observed that the daily Coppock Curve had probably peaked. That was confirmed today by the Coppock’s reversal against most of the 24 industry groups. Our initial estimate is that these near term pressures could persist for the balance of the year but – more importantly – they join an already weak intermediate background (the weekly Coppock has a bearish bias for 19 of the industry groups). This, plus the fact that the a-d lines for the S&P 500, 400, and 600 indexes are well below their recent highs (as is NYSE on-balance volume) suggests that the downside risk – in terms of both price and time – increasingly outweighs the upside potential.

Nearby support is at 1087-1085 and the post-March trend line is at 1100. A violation of the 15 point range would likely open the door for a test of 1029-1020. We have said many times that a break of that lower level would confirm that the post-July rally was over.

As for resistance, the downtrend line from the 2007 high is currently just below 1105 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

Oil

As mentioned in recent comments, oil’s dominant feature has been an 81-76 trading range. Today, oil broke down from that range and, in the process, is seriously testing important support trend lines. As a result, preliminary point and figure objectives and Fibonacci retracements suggest that the initial downside potential is on the order of 71; below that, we would look for 66-64. There is now significant resistance in the 77-80 area.