Good morning traders. As I wrote in my morning note for Waverly Advisors: “Though yesterday’s price action in the US Equities markets does not appear to be constructive for the bulls, it is important to consider the context of this move. The S&P 500 (chart above) shows what appears to be a classic failure above resistance, but smaller market cap indexes were somewhat overbought. In fact, yesterday’s close is the 5th consecutive upward close for the Russell 2000, which could now be due for a pullback.” All if this again highlights the danger of only using SPY or S&P futures as a market proxy without regard to other market cap “slices”. It is important to realize the impact of market structure and shifting momentum among sectors and market cap indices–one of the key elements of current market structure is this divergence between SPY and IWM.

For swing traders, we are still pretty clearly in bullish mode, but daytraders and short-term traders can expect many crosscurrents while the market deals with the double whammy of an overbought Russell 2000 and the SPY at very visible and significant resistance. Additional volatility, false breaks (in both directions), and choppy trading are to be expected until the market resolves this situation and decisively picks a direction.  Do not expect clean moves on a move either up or down today.

We see some premarket activity in a handful of Healthcare / Pharma stocks that could put a few of those stocks in play this morning.  In addition, we are watching Energy, Basic Materials and Financials to be in play today. Note that Gold and Silver have had 2B tops on the daily charts. This is unlikely to end their bullish runs, but does also suggest the emergence of two sided traded and the probability of some increased volatility in those metals and related stocks. Swing traders could approach Gold and Silver with a downward bias as long as the market is holding below yesterday’s high.

SPY

123.80

122.40-122.60 key inflection

122.20

121.55