Relief Rally or Change In Sentiment?

New lows, but not for retail

While retail traders were resting their weary eyes, the S&P 500 broke through the June low in the overnight session. Up until Tuesday’s cash session, 3,639 had remained the low for the year until it was briefly tested by four points. 

When the opening bell for the cash session sounded on Wednesday, the market had re-established itself above the 3,636 level. It appears that 3,639 will be a significant level to watch as price action will likely find itself here again.

Short-term relief rally

Many Traders at Simpler Trading have provided cautionary statements as the market has traded near the June lows. Traders warned that the market is oversold in the short term and could potentially be looking for a relief rally. 

Often when the market is over-extended in either direction, it will look for a reversion to the mean. A relief rally occurs when there is exhaustion from one side of the market. The relief rally finally occurred today after the previous six days were aggressively negative. 

Today’s price action was dominated by constant buying pressure, as sellers were nowhere to be found. It’s possible that this reversion to the mean, or relief rally, can be spread over several days. 

As a reminder, this week’s close will bring an end to the month and the third quarter of the year. 

Considering this, let’s look at potential price targets on both sides of the new level of support, 3,639. 

Roadmap going forward

On the upside, there is still a psychological target of 3,750 and 3,800. The high today came in around that 3,750 level. The other area on the chart to be aware of is the pool of liquidy up above at roughly 3,880. 

The 15-day simple moving average (SMA), the 21-day exponential moving average(EMA), and the point of control (POC) level all reside near 3,880. 

On the downside, there is a Psychological level of 3,700, and the previous low of the year at 3,636. 

Market sentiment 

The line in the sand still sits at 3,700. If price action holds the line in the sand, the market may continue its relief rally, potentially to liquidity.

Although we aren’t sure how long this rally will last, we know that the macroeconomic sentiment remains bearish. In the short term, it appears that sentiment has temporarily become bullish. 

Market closes positive 

Buyers showed strength into the close, with impressive volume and pressure to the upside, ending the day the way it started.

At the close, the Nasdaq and the S&P 500 were positive at the end of the session. The S&P 500 futures closed up 2.03%, gaining 75 points, while the Nasdaq futures closed up 1.97%, a gain of 225 points. The Dow followed, closing up 1.95%, adding 568 points