Stocks Break Below 6800 — Testing Critical Support

Summary

Stocks broke below the lower end of their multi-week trading range on Friday before gapping lower again on Monday.
The selloff pushed price down to the rising 200 day moving average and the 6620 support level, where buyers stepped in and reversed the market higher.
The key question now is whether Monday’s reversal marked an important cycle low.

Stocks have spent the past 10+ weeks trading in a relatively tight range between the 7000 resistance level and the 6800 support level. That range finally broke on Friday. Stocks closed below the 6800 level on Friday, signaling a potential breakdown from the consolidation. Selling pressure continued at the start of the new week as stocks gapped lower on Monday. The gap down pushed price below both the 6700 level and the 6650 level. However, the decline stalled near a key technical area where the rising 200 day moving average is converging with the 6620 support level.

Buyers stepped in at that level, producing a strong intraday reversal that allowed stocks to close higher on the day.From a cycle perspective, Monday was day 33 of the current daily cycle, placing the market directly in its timing band for a Daily Cycle Low (DCL).

If stocks can now form a swing low and close back above the 10 day moving average, it would confirm day 33 as the DCL. One key level to watch is 6810.44. A break above this level would form a swing low. If that occurs alongside a close above the 10 day moving average, the recent breakdown could prove to be a failed move lower.

A failed breakdown at this stage of the cycle would be a bullish development, suggesting that day 33 marked not only the daily cycle low but potentially the longer-term Intermediate Cycle Low as well. This is an important possibility that I plan to explore further in the upcoming Weekend Report.

Key Levels to Watch

Support

6620
Rising 200 day MA

Resistance
* 6810.44

10 day MA

Cycle Signal
* A swing low with a close above the 10 day MA would confirm day 33 as the Daily Cycle Low.

Cycle Context

Markets often become volatile as they approach important cycle timing windows. The sharp breakdown followed by Monday’s reversal may be a sign that stocks are attempting to form a cycle low.

Cycle Trading