XJO is continuing its pullback from a wide range up move on Tuesday. The price index closed the week at the close on Monday and below the close of last week. Prices remain trapped in a trading range between 5465/75 and 5555/65. 5535 is a key pivotal level around which prices oscillate. Prices are at the uptrend line drawn across the August 2016 bottoms and near the 5500 handle. A break lower from here and below the 5500 handle would denote a bearish change of behavior. The weak close at the low of the session as well as the low of the week and slightly above average volume gives the bears the upper hand for now. However, a bounce from the uptrend line can not be ruled out. Expect choppy and trendless price action to prevail until a clear trend can emerge. Market Condition remains in a Stage 3.
The NH-NL Index is weakening with the sensitive 1-Month NH-NL index being negative. The intermediate 3-Month NH-NL index dropped in its neutral zone while only the long-term 12-Month (52-Week) NH-NL index remains positive. The uptrend from the February 2016 washout low caused enough inertia to keep the long-term NH-NL index in bullish territory. The Weekly NH-NL index is continuing to fall from a top in this indicator in July 2016 which gave a message for a major price top in the market. This top has been made in the first session in August 2016. The New Highs – New Lows raw data suggests a lack of underlying strength with New Lows being above their bullish threshold of +80. New Highs are about to drop below their bullish threshold which would give a confirmation message for trouble in the market.
The Secondary Market Internals are weakening with the NH-NL Ratio at pre-July 2016 levels and its moving average falling. The Volatility Index is about to cross its moving average. But only a break above its upper band would be a message for trouble in the market.
The Breadth Indicator remains negative with the McClellan Oscillator continuing to fall together with the Summation Index. A negative oscillator is almost always negative for markets while a falling Summation Index denotes liquidity leaving the market. Liquidity is the fuel which drives prices.
The Bottom Line. The price index remains trapped in a trading range. While prices are holding up well, bulls are unable to make upward progress. Market Internals continue to weaken. This puts the price index in a vulnerable position for a pullback. Trading Mode remains Aggressive.