Measuring the Selling Pressure - Trading Week Update

It's easy to get used to a powerful rally as long as we keep in mind that eventually there will be a pullback. The S&P 500 had moderate losses today, as the Russia-Ukraine talks don't look that promising anymore. Unfortunately, the mid-cap and small-cap indexes suffered a lot more.

I'll start as usual with the S&P 500 daily chart. The important issue from my point of view, is that we need a pullback in order to get out of the overbought area (+3 KC, red arrow) and that pullback needs to be a healthy one (one that stays above the -1 KC, orange arrow, right now is around 4,365). If the supply can't get absorbed, then the New Monthly Lows can get too elevated and the S&P could close and stays below the -1 KC. All those are red flags that could signal that the rally is over and we need to evaluate how the situation has changed.

S&P 500, daily chart, you can click on the image in order to zoom in

I'm checking on daily basis the mid-cap index of S&P 400, it looks weak, I had pointed out in a previous post how the weekly resistance of 2,742 had caused the index to decline multiple times in the last year (orange arrows). The S&P 400 is already testing the resistance, now let's see if it's able to hold above it, or it will just start declining as in the past.

S&P 400, daily chart, you can click on the image in order to zoom in

The small-cap index looks even weaker than the S&P 400, the S&P 600 is not even close to reach the weekly resistance at 1,378. Previously that resistance has caused the index to decline in the last year (orange arrows).

S&P 600, daily chart, you can click on the image in order to zoom in

Reviewing the New Highs and New Lows numbers (NH-NL), the Monthly New Highs suffered, fortunately the New Monthly Lows are still at a low level. If we are at the beginning of a pullback, the Monthly columns are the most important ones, since they change a lot faster than the rest, warning of potential troubles ahead.

If a multi-day pullback is indeed beginning to develop, it will be a great way to measure how strong the selling pressure can be. If it can't take the S&P 500 below the -1 KC then there is a good chance that the rally resumes. Otherwise, the selling pressure entering the Market can signal that it's still early to think about aggressive long trading.