Recognition of Supply - That's all

Sell-offs across the board today for stocks. Can't say it was all that surprising after a 1200 point Dow rally in less than 2 weeks. But 250 Dow points certainly make for good headlines. What do we make of all this?

We'll chalk this one up as a "recognition of supply". There have been sellers at these prices in the past, and there were sellers again. The market has memory here, and today confirmed that:

Here is the Dow Industrials SPDR fund running into trouble at the same levels as Aug 31/Sept 1:

Same thing with the the S&P500 SPDR Fund - selling off at the Aug 31/Sept 1 highs:

Dow Transports selling off today at the same price it's sold off for 2 months now:

Here is a chart of the Semiconductos where we discussed last week that Sellers should be coming:

In the case of FXI, our favorite China ETF, the 50 day moving average comes at a place that was prior support throughout August and early September. This Polarty combined with a Downward-Sloping 50-day moving average is a logical area for supply:

Now what?

I think the next two charts will help us determine whether or not the previous set of charts will be able to battle it out and breakout, or if today's declines are the start of a much further correction. We have discussed for a while here that the Nasdaq100 has been outperforming across the board. Last week's breakout to new highs is being tested right now. Was this a false move that will lead to a fast move down - leading the rest of the above charts much lower? Or is this just a test of new found support for the leaders, before the uptrend and relative outperformance continues?

Same thing with the Consumer Discretionary sector. After breaking out to new highs last week, we tested former resistance (and possibly new found support) today. Like the Nasdaq100, is this a false move that will lead to a fast move much lower? Or just a healthy retest on it's way to higher highs?

I think the last two charts of $QQQ and $XLY will really help determine the next direction for the broad market. For now, we'll classify today's move as nothing more than recognition of logical supply. We will know as this week progresses if this is the beginning of something more. The last 2 charts will be our tell.

Tags: $DIA $SPY $QQQ $TRAN $XLY$FXI $SMH