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The selling pressure in the technology sector intensified, leading to the Thursday and Friday selloff. Additionally, distribution from consumer cyclicals, industrials, and Thursday’s sell signal from utilities indicate a broadening of sectors pushing the market lower.

At this point, seven of the eleven sectors are in a sell signal. Consumer defensive and communication services are the only sectors that continue showing accumulation and strong price potential.

The real estate sector has been showing encouraging accumulation lately. Friday’s close back above 50% of the range indicates the bulls reclaimed control. Recent accumulation in the real estate sector may lead to further potential to advance, which I am watching closely.

Insurance stocks’ strength is the only thing keeping financials from total collapse. Capital markets, credit services, asset management, and banks are crumbling. Friday’s S&P 500 selloff was held at the Fibonacci 1.25 expansion from the January-February range at 5679.78 and the top of the July-September 2024 base at 5669.67.

The confluence of significant Fibonacci support offered a springboard for a bounce. However, the rally from Friday’s lows could not reclaim the recent January low at 5726.54. A weekly close below the January low indicates a breakdown from the previous YTD lows and confirmation of a triple top that started on December 6. The bears are firmly in control as the market comes under extreme distribution.

A short-term rally is possible because the S&P 500 is oversold. Closing back above the Fibonacci resistance at 5726.54 would allow a relief rally that could hit the Fibonacci resistance at 5866.84. Closing below 5669.67 will open the trap door to another leg lower. The next downside Fibonacci targets are 5542.10-5532.07, 5394.06, and 5167.98.

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The 21-day stochastic has surged past the critical 20% level, flashing a powerful bullish signal in this weak downtrend. Adding fuel to the fire, the price phase indicator is climbing, hinting that a price surge could be on the horizon.

Meanwhile, volume accumulation is on the rise, further reinforcing the case for an upward move. Historically, when these conditions align in a downtrend, they act as a precursor to a market rebound.

Even as intraday lows hit a 21-day bottom, the positive volume accumulation percentage suggests underlying strength. While this is a weaker bullish signal, it still points toward a potential recovery.

One final twist: though the price phase indicator remains negative, the advancing volume accumulation creates a rare non-confirmation signal—one that often precedes a strong bullish reversal.

The stage is set. Will the market follow through? Stay sharp—this could be the turning point.

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Market Commentary: Bearish Signals Emerging

The market’s short-term outlook is tilting bearish as the 21-day stochastic drops below the 80% threshold and the price phase indicator trends downward. In a sideways environment, this suggests a potential pullback in price action.

Further reinforcing this caution, the price phase indicator, volume accumulation percentage, and advance/decline oscillator are all in decline. In a range-bound market, this trio of weakening indicators points to a possible short-term downturn.

Adding to the downside risk, volume distribution is rising despite a still-positive price phase indicator—a classic bearish non-confirmation. Moreover, the new high/new low indicator has reversed lower, a historically reliable warning that a downtrend may soon take hold. If momentum doesn’t shift, sellers could gain control in the near term.

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On 1-14-25 and 1-15-25 we had 2 powerful AI-generated up signals on the Dow Jones. The market rallied strongly after these signals. Here’s a summary of what the AI said with these 2 signals in a row.

The market shows signs of a potential trend change, shifting from a strong downtrend to a weak upward trend. Multiple key technical signals are aligning:

1. Trend Structure: Early signs of upward momentum are emerging, though still fragile. Strong reversal signals appear from the previous downtrend, with the new high/low indicator turning up – a historically reliable reversal signal.
2. Momentum Signals: The 21-day stochastic has crossed above the key 20% threshold while the price phase indicator is rising. Both signals are gaining particular strength as they emerge from deeply oversold conditions.
3. Price and Volume Alignment: The closing price has moved above the 21-day EMA while volume accumulation is increasing. This suggests smart money is actively accumulating positions during market weakness, a significant bullish indicator.
4. Market Breadth Triple Confirmation: The advance/decline line, volume oscillator, and A/D oscillator have all turned positive, supported by strong volume accumulation. This broad market participation significantly increases the probability of a sustained reversal.

The convergence of these signals during a transition from a downtrend to a weak uptrend suggests a significant trading opportunity could be developing, though the trend’s current weakness means traders should remain vigilant with position sizing.

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