Relief Rally Quickly Ends


Simpler Trading Team

3 min read

Relief Rally Quickly Ends

On Wednesday, buying pressure dominated the market, bouncing off support for a decent relief rally. However, it was short-lived as sellers took the wheel in the overnight session. This selling pressure continued after the Thursday morning cash session bell rang. 

It didn’t take long for all of yesterday’s gains to evaporate as the markets steadily moved lower.  

Relief rally characteristics 

Relief rallies are not often buyers outmuscling the sellers but rather a general lack of sellers in the market. This happens when there has been exhaustion to the downside. Often this signals that larger players on wall street are taking profits. The rally ensues as they buy back their short positions.

Relief rallies can be sustained as long as the sellers remain on the sidelines, but as we saw in the after-hours session on Wednesday, sellers are back in the action, setting the tone for the remainder of the Thursday cash session. 

Todays Market Recap

As the opening bell sounded for the cash session, the S&P 500 was trading below 3,700. This level has continued to the battleground if the markets want to move lover. 

The market quickly broke through the resistance set at 3,700, the Volume Weighted Average Price. After doing so, the market did not look back, putting in a downtrend for a majority of the cash session. 

When an intense trend day occurs, the Volume Weighted Average Price (VWAP) will often support the overall trend. One price action has moved below the Volume Weighted Average Price (VWAP); it will serve as a level of resistance. As we saw today, VWAP pushed both the Nasdaq and S&P 500 continuously lower. So low that the market has officially made a new low of 3,622 during today’s cash session.  

The “unofficial” low of the year still remains at 3,613. It is ” unofficial ” because that print came during the pre-market session on Tuesday.

Targets to end the week

On the upside, the psychological targets that are the most realistic to end the week are 3,700 and 3,750. For these levels to be in play, support levels of 3,650 must be held. Above 3,650, the market can try to work its way back towards liquidity. On the downside, if 3,650 can not be held, the targets are 3,622, 3,613, 3,600, and 3,550.

Something to be aware of is that the break of the current low of the year could potentially cause panic selling into the end of the week, month, and quarter. 

Back to red

To end the cash session, the market did push higher back towards VWAP and ended the day back at levels of resistance. This slight push was not enough to close green as the market completely engulfed Tuesday’s relief rally. 

At the close, both the Nasdaq and the S&P 500 futures were considered negative. The S&P 500 futures closed down 1.98%, losing 74 points, while the Nasdaq futures closed down 2.78%, a loss of 320 points. The Dow Jones followed along, declining 434 points, losing 1.46%.

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