The U.S. stock market stepped back from the cliff’s edge with a key reversal Wednesday. For today, the real question is “What’s next?”

Let’s explore with the help of three charts.

Please click here for an annotated intraday chart of S&P 500 ETF SPY.

Please click here for a second annotated daily chart of S&P 500 ETF.

Please click here for an annotated chart of iShares 20+ Year Treasury Bond ETF TLT. For the sake of transparency, the second and third charts were previously published and no changes have been made.

Note the following:

• The first chart shows a key reversal. This is positive and, in traditional technical analysis, it means a rally is ahead.

• The first chart shows that the VUD indicator stayed mostly orange during the strong rally from the lows. The VUD indicator is the most sensitive measure of net supply and demand in real time. The indicator staying mostly orange during the strong rally indicates that there was more supply of stocks than the demand for stocks. The market rose because buyers were significantly more aggressive than the sellers.

• The behavior shown on the first chart of a key reversal accompanied by a negative VUD indicator means that more likely than not a subsequent rally may fail.

• The second chart shows that The Arora Report gave four signals before the drop in the stock market. One of the signals was to short-sell the Nasdaq 100 ETF, or for aggressive investors who could not short sell, buying leveraged inverse Nasdaq 100 ETF SQQQ, which goes up when the market goes down. The other signals included increasing hedges to protect portfolios, and taking profits on select positions including China and Japan.

• The second chart shows the second support zone. So far the support zone has held. Further, the support zone has held in a manner that increases the probability of a short-term rally.

• For a chart showing the third and fourth support zones, please click here. For the sake of transparency, this chart was published before the stock market fell. To learn how to use support zones to your advantage and gain an edge, consider abandoning the use of traditional support lines and please see “The most important indicator in the stock market today is support zones.”

• Popular tech stocks Apple AAPL, +1.41%, Facebook FB, Amazon AMZN and Microsoft MSFT also staged strong reversals. This is positive in the short term.

• Semiconductor stocks, which often give advance indications of the stock market, also reversed.

• The trigger behind the stock market drop was rapidly falling bond yields. Bond yields have recovered from the lows but the situation is still precarious, as shown by the third chart linked above. For details on interpreting the chart, please see “Bonds and gold are sending danger signals to the stock market.”

• Take a look at the charts of gold ETF GLD and silver ETF SLV; both staged a strong rally. Gold miner ETF GDX staged an even stronger rally. This is of note because gold is rising in spite of a strong dollar…Read more at MarketWatch.

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