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Big Red Candle: What's It Mean?

|Includes:JNK, SPDR S&P 500 Trust ETF (SPY), TLT, VXX

Is the end of day sell-off reason to worry? Well, the selling probably is not over. There is support from the 21ema near 1507. The 55ema is down near 1484. The top of the cloud is near 1470. They should all provide support. But let's look at a few common tells to see how big of a pullback this could be and if there is confirmation from other instruments.

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The Dollar

The dollar (DXY) broke above its recent trend line from the wedge it was in, and upon coming down to test is, it really bounced hard. That probably signals a couple-day correction at least.

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The weekly chart below shows a much larger time line. I don't post this to show that we could go back towards 85. I only post it to show how strong the resistance (support) is at 82. It is a frequent stopping point for the stock, from whichever direction it approaches. If we bust through that, watch out. The correction could be large. Until then, I expect the dollar to bounce off of 82 and any correction to be reasonable.

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Bonds

The bond ETF (NYSEARCA:TLT) is another proxy for the market. Notice in the chart below the downward channel it has been in for almost 3 months. If it breaks out of the channel to the upside, it would confirm that a correction is taking place. I would expect it to break out even on a smaller correction.

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VIX

The VIX has been languishing for weeks. It can move in a huge hurry, so I am just watching for any break above the 55 moving average on this weekly chart.

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Junk Bonds

Junk bonds swooned two weeks ago, which could be a sign, but it is currently just below its 21 day ema and 55 day ema. In the second chart I put in a trend line. Will watch for it to break that, which could signal a larger correction.

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This could be the start of a sustained move back toward 1460. But I would need to see one of these beside the dollar for it to convince me we can go to 1450-60. If the dollar breaks above 82, it could be an even larger pullback toward 1420.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: SPY, TLT, VXX, JNK