Overnight Traps

As promising as yesterday's bounce looked and felt for bulls, one of our chief concerns insofar as electing not to add new long exposure was that we first wanted to see bulls survive the overnight futures session. Specifically, we have seen some rather tumultuous overnight sessions in August, and last night was no different--In fact, it was all the more pronounced as the "yield curve inversion equals recession and bear market" chants are gathering steam. In sum, futures became rattled and that jittery feeling is spilling over into a sizable gap lower across the board this morning in equities. 

Technically, the gap lower takes us back down to late-Monday afternoon/Tuesday morning's lows, as seen on the 10-minute updated chart of the SPY, ETF for the S&P 500 Index, below. On the actual S&P, that level is 2,877. Simply put, bulls need any dips below that level to be brief and bought up by the end of the day, since a close below it opens the door to a fresh, abrupt leg lower to cement a bear flag pattern on the S&P daily chart over the last week or so. Beyond that, the runaway freight train known as TLT (prices for Treasuries, inverse to yields) must reverse on some level, too, in order for equities to enjoy a respite. 

For now, the recession fears are front-and-center for many market players, which you can be sure the financial news media will pound into submission to create the sensational coverage possible. Our focus is not so much on the yield curve but rather if this volatility and daily whipsaw continues with an overall sideways result, or instead with resolution lower. In assessing that, we want to key off Monday/Tuesday's lows on the major indices today to see if they hold by day's end.