With the very negative reading from the ISM Manufacturing report last Tuesday, October 1, the proposed market rebound took place at a lower starting point, right down at the daily TDST Support levels. The S&P 500 (SPX) averted a selloff by closing above 2887.94 TDST Support level. (Aside – Two consecutive closes below TDST Support level with a TD Buy Setup 1 through 3 provide the strongest bearish initiation). Going forward, this is clearly the level to watch to gauge continued market weakness.
The Nasdaq ETF (QQQ) shows a similar pattern. The one difference versus the SPX is the QQQ had one close below the TDST Support level at 185.03, but there was no follow-through as the QQQ closed above 185.03 the following session.
The Russell 2000 ETF (IWM) is a bit of an anomaly and a bit more challenging. The October 1 and October 2 candles closed below the TD Risk level at 149.10. Following a rules – based methodology, that’s a signal to abandon any bullish views. But there is a corollary to bring more context. The first is TD Buy Setup was already extended. Unless the market is in crash mode, the IWM was too oversold and it was already expected the IWM was ready to attempt some level of price recovery. Another was the TDST Support level was 2% away from the TD Risk level, which would make it a low probability for TD Buy Setup to continue extending with lower lows. Finally, both the SPX and QQQ were able to close above their respective TDST Support. This should help temper expectations of a further selloff in the short term. Intermediate term, the inability for the IWM to follow the SPX and QQQ suggests selling pressure will return.