The Russell 2000 formed a Bearish Engulfing candlestick pattern today on a Parabolic SAR sell signal.

Russell 2000 stock chart with bearish engulfing pattern

Notice too that the MACD has gone negative.

The market is very overbought and vulnerable to a pullback.

The problem that market bulls have is that there isn’t much support on the S&P 500. The first support is the 200 day MA at 2750 and the next support is 2700.

The other problem is that since the start of 2019, the market has gone up so much while EPS forecasts have fallen, more traders are thinking that a China trade deal may already be priced in and so we could get a “sell the news” move.

I’m not drinking the Bear Kool-aid though that a big sell-off is about ready to hit. One day does not a market make. The S&P 500 only closed down -0.39% which is not enough to shift the bigger picture that markets are in an uptrend. Furthermore, did you notice that Bears had control of the market until lunch time and then totally lost it. It looks like some professional traders cleared out the stops and then reversed and bought the dip.

The market opened higher with momo traders buying, but the smart money started selling into the strength ultimately causing a downward move in markets.

The market may continue to rally on rumors of a trade deal but there may be a “sell the news” move when a deal is actually struck. If we get news of a trade deal, the market may initially spike up, but then come crashing back down as “sell the news” and book profits kicks in.

Thankfully, we stayed clear of today’s whipsaws by staying on the sidelines and in the safety of cash.

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