Stocks closed lower yesterday, with the S&P 500 falling by 89 basis points. The drop could have been steeper if not for a late 19 basis point rebound in a one-minute candle at 3:59 PM.
I was surprised by the market-on-close (MOC) orders yesterday. Not only were they predominantly sell orders, but their size was unusually small—less than $1 billion. Typically, substantial buying or selling at the close indicates systematic funds are active, especially if it happens regularly.
Yesterday’s smaller MOC raises questions. It’s the first time in a while we’ve seen such a minor close, suggesting that yesterday’s decline might have prompted a shift in those systematic funds.
With that in mind, here are four key market signals traders should watch as Powell prepares to speak at Jackson Hole Symposium.
1. S&P 500 Breaks Channel
Volume was higher yesterday on the S&P 500, and it also appears that the futures broke an upward-sloping channel. It seems the market finds it easy to rally when there’s low volume, but as soon as that volume starts to tick higher, the rally stops. This suggests there may be more of an absence of sellers in the marketplace than buyers rushing in.
The break of the upward-sloping channel is also noteworthy because it resembles a flag pattern with an upward-sloping channel. These patterns often break lower, which is precisely what happened here.
2. Volatility Crush Ahead?
Additionally, the VIX jumped yesterday, likely in anticipation of Powell’s speech today, which sets up the potential for a volatility crush once he begins speaking. The critical difference between Powell’s appearance at Jackson Hole and an FOMC meeting is the timing—Jackson Hole takes place in the morning and is a much shorter event.
This means that once he’s done speaking, there’s still nearly a full day of trading left, unlike the brief 45-minute window after an FOMC meeting. So, while a volatility crush could occur as he speaks, it may not last.
3. USD/CAD Correlation With S&P 500
Yesterday, we also saw the USD/CAD turn higher, coinciding with the S&P 500 turning lower.
The USD/CAD has found support around the 1.36 level, which aligns with a long-term uptrend and the 200-day moving average.
This 1.36 region is a strong candidate for a potential bounce, possibly pushing the pair higher toward the 1.39 area.
4. Bearish Engulfing Candle in Nasdaq 100, Semiconductors
The Nasdaq 100 approached the 78.6% retracement level yesterday before reversing and forming a bearish engulfing candle.
While these bearish engulfing patterns haven’t been highly effective lately, it’s worth noting that similar patterns formed on July 11 and August 1, both of which led to significant declines in the days that followed. So, this one should still be respected.
The SMH also reached its 61.8% retracement level yesterday and formed a bearish engulfing pattern, following suit with the Nasdaq 100.
Nvidia (NASDAQ:) also hit its 78.6% retracement level again, forming a bearish engulfing pattern yesterday.
We’ll see how things unfold today, but plenty of evidence suggests this could mark a turning point for the market overall, potentially creating a lower high.