Belated Reaction to Fed not Positive

Extended conditions came home to roost yesterday as the market suffered a significant blow. Breadth was horrible as the majority of stocks sold off in a big way. Technical breakdowns dominated the market, indicating that Wednesday’s strength was nothing more than a bull trap.

The only positive that remains is the ugly bearish sentiment that predominates. When everyone expects the market to roll over, it seems unthinkable that it will accommodate the crowd’s sentiment.

Nevertheless, we can’t argue with the charts, even when weighing in sentiment readings. The chart shows a very weak market here. Likewise, we are starting to see broad failure in our long positions, which is a large warning sign. It is important to not fight the tape here.

Sometimes looking at the market’s inverse can give a clearer picture of where the market is at technically. Taking a look at the QID chart below (the QID moves up as the QQQQ moves down), we can see that a breakdown failure is in the makings. Put into QQQQ terms, this means that the breakout of the Nasdaq 100 may very well be in jeopardy of failure. Breakout failure is usually followed by a hard reversal lower.

If the QID can follow through and recover the downsloping trendline drawn on the chart below, we will have a breakdown failure in the works (which translates into a breakout failure on the Nasdaq 100).