- The feared selling ignites Friday after the ECB sinks in, a Fed dove talks rate hikes. - Volume surges, breadth is massively negative, but new lows are light, VIX has a long way to go. Hard to bottom right after you put in a top. - Have to respect that kind of selling and shift focus. Upside becomes selling opportunity.
Perhaps a delayed reaction to Mario Draghi and the ECB failing to discuss equity purchases, perhaps a reaction to a purported dove Fed voting member (Rosengren) arguing that rate hikes are needed to prevent economic damage. With talk of two hikes this year by some esteemed Fed members, that certainly means September is on the menu. Perhaps those comments on top of a less than great economy were more than investors could bear.
Whatever the ultimate reason the market went ahead and broke lower. A hard break lower. SP500, DJ30, SP400 all crashed through their 50 day MA's while SOX, NASDAQ and RUTX dove to close at their 50 day MA's.
VOLUME: NYSE +31%, NASDAQ +18%. Both exchanges sold on impressive jumps in volume coming in well above average. Low volume advances can get dropped like bags of dirt when the sellers show up.
A/D: NYSE -17:1. NASDAQ -6:1. One downside session and the downside breadth is at an extreme level. -6:1 is extreme, -10:1 is typically market turning. -17:1 is so bad it is almost meaningless, like getting blown out in a basketball game by 50 points. Just forget about it and go on to the next one. By itself the massively negative breadth doesn't mean a whole lot. Just coming off new highs none of the other indicators are nearly that extreme.
VIX: +40%, but even that move took it just to 17.50.
New lows: Barely moving thus far given the indices at or near highs.
As you can see, the indicators are a mixed bag with some massively negative, others not. Until they all line up together they mean little individually.
Not a lot of magic or mystery to this move. The market was still producing up and coming leadership as noted last weekend, leadership turning the corner after long downtrends. Many of those are actually still in good shape even after Friday.
The gutting occurred in the big names and in the stocks that have already enjoyed the biggest runs. GOOG, AMZN, AAPL, MMM, UTX, HD, NVDA -- stocks that hit or nearly hit new highs getting turned over.
The question is going to be how far they fall, whether this is the start of the feared plunge or just a violent shakeout in an otherwise continuing move higher.
Given the virulence of the decline, even if it was on a Friday and a lot of strange moves occur on Fridays, you have to give the move its due. For us that means not assuming it is just a drop in a trend higher but the start of some selling whose end is uncertain. The breaks were violent enough to put the uptrends in question.
Thus we closed many positions that were not holding their trends. More than a few held and we let them work; after Friday bombs if the move was just an overreaction you can get a rebound early week to at least get a better exit point. Outside of that, we don't want to count on Friday being a one-off event. The strength of the drop has to be respected.
We were fortunate enough to get to take some gain, banking a nice profit on STX as it jumped early, taking some solid downside gain on the AVGO position. Wish we had taken more from other positions earlier in the week but the trend was working well. Closed many positions with trailing stops and managed to open some downside positions.
So we manage the remaining upside to see if they continue their trends and patterns, if not we see if we can get good exit points. Any bounce that fails is a better exit point and also a better entry point for downside positions.
Again, with the force of the selling you have to respect the downside. We were already somewhat defensive in that we were not letting upside plays stray far before we closed them and we were moving into some downside positions. Wish we had done more as noted above, but the shift was underway. For now we are looking for downside opportunity and limiting damage regarding upside positions.
THE MARKET
CHARTS
Sharp breaks through near support with 2+% to 3+% losses on the indices. The NYSE large caps and midcaps blew up the 50 day MA's, the small caps, NASDAQ and SOX fell to those levels.
SP500: Gave up its 50 day MA's early session, gave up the July/September trading range, gave up the 2015 prior all-time high. Just over some support at 2120-2100, but with this kind of drop it is more of seeing where it finally shows some support.
DJ30: Diving below the 2 month trading range and giving up the 2015 prior all-time high, already at the mid-April high.
SP400: Gapped lower, broke the 50 day MA's, undercut the late July low, landing on the early June high. Nice uptrend flipped in a session.
NASDAQ: NASDAQ gapped upside to start August on its way to higher highs. After hitting a higher high Wednesday, Friday NASDAQ gapped lower and sold through the early August upside gap. As with the other large cap indices, NASDAQ broke below its new high range all in one move. Closed just below the 50 day MA's. A little better positioning than the other large cap indices, but no less virulent a selloff.
RUTX: From a higher recovery high to right back to where the move of the last 5 weeks started from. That puts RUTX at the 50 day EMA that are coincident with the bottom of the summer 2015 range that holds RUTX' all-time high.
SOX: Gapped through the 20 day EMA and sold to just above the 50 day EMA. Of all the indices, a more 'normal' looking drop to a key support level.
LEADERSHIP
Big Names: FB folded off of the strong move through Wednesday. AAPL, already heading lower, broke the 50 day MA's. AMZN gapped and sold to the late August lows, still holding over the 50 day MA's. NFLX fell hard away from the 200 day SMA test. GOOG gapped and sold to the 50 day EMA. Not good.
Chips: Not all carnage. MRVL sold to the 20 day EMA, recovering to hold it. MU is holding the 10 day EMA. Others are not as well off. AMD undercut the 50 day MA's. XLNX is selling back toward the 50 day from its high. Ditto SLAB. AVGO dove below the 50 day MA's, landing us a nice gain.
Financial: Even as interest rates jumped higher the financials struggled, victims of the strong overall market decline. C gapped and faded but still holds over the 20 day EMA. JPM is testing its 20 day EMA. GS surged then reversed to the 10 day EMA. Struggled but fared better than most.
Oil: Oil gave back part of its big Thursday move, but held well enough. CWEI did the same. APC gave back just a bit while APA put in a gain. AXAS is testing a great move higher. WMB lost just a bit of ground. Others are not so pretty, e.g. PTEN.
Industrial equipment: Started breaking down. CAT, TEX were fine but put in strong breaks lower. CMI tested and is heading lower.
MARKET STATS
NASDAQ Stats: -133.57 points (-2.54%) to close at 5125.91 Volume: 2.135B (+17.9%)
Up Volume: 195.16M (-596.07M) Down Volume: 2.01B (+990M)
A/D and Hi/Lo: Decliners led 5.98 to 1 Previous Session: Decliners led 1.02 to 1
New Highs: 45 (-106) New Lows: 47 (+14)
S&P Stats: -53.49 points (-2.45%) to close at 2127.81 NYSE Volume: 1.1B (+31.06%)
A/D and Hi/Lo: Decliners led 17.16 to 1 Previous Session: Decliners led 1.2 to 1
New Highs: 68 (-165) New Lows: 24 (+15)
DJ30 Stats: -394.46 points (-2.13%) to close at 18085.45
SENTIMENT INDICATORS
VIX: 17.5; +17.5. VIX jumps 40% but is still only at 17. 30 starts getting interesting, 40+ is more important when considering a recovery. VXN: 17.96; +17.96 VXO: 17.36; +17.36
Put/Call Ratio (CBOE): 1.18; +1.18
Six 1.0+ Readings in 3 weeks. Likely still several more of these to come.
Bulls and Bears: Bulls are backing off nicely without hitting near 60 and bears are climbing. Not bad action for the rally to continue.
Bulls: 52.5 versus 55.9
Bears: 22.8 versus 20.6
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Bulls: 52.5 versus 55.9 55.9 versus 56.7 versus 56.2 versus 54.3 versus 52.9% versus 53.9% versus 54.4% versus 52.5% versus 47.1% versus 41.6% versus 47.5% versus 45.9% versus 47.3% versus 45.4% versus 35.4% versus 40.2 versus 39.2 versus 40.2% versus 44.3% versus 47.4% versus 41.2% versus 45.4% versus 43.3% versus 47.4% versus 44.4% versus 39.4% versus 36.4% versus 34.7% versus 26.5%
Bears: 22.8 versus 20.6 20.6 Versus 20.2 versus 20.0 versus 20.9% versus 21.2% versus 21.6% versus 23.3% versus 24.7% versus 24.5% versus 23.8% versus 23.2% versus 23.5% versus 23.8% versus 23.7% versus 24.0% versus 21.7% versus 21.6% versus 21.7 versus 20.6% versus 21.7% versus 27.8% versus 27.8% versus 28.9% versus 27.8% versus 30.3% versus 35.4% versus 34.3% versus 35.7% versus 39.8% versus 39.2% versus 38.1% versus 35.4% versus 36.1%
OTHER MARKETS
Bonds (10 year): 1.67% versus 1.61%. After selling through the 50 day EMA Thursday, TLT gapped sharply lower and through the late June upside gap. Bonds broke this past week.
Historical: 1.61% versus 1.53% versus 1.54% versus 1.601% versus 1.57% versus 1.58% versus 1.57% versus 1.57% versus 1.62% versus 1.58% versus 1.56% versus 1.54% versus 1.58% versus 1.53% versus 1.55% versus 1.57% versus 1.558% versus 1.51% versus 1.56% versus 1.51% versus 1.54% versus 1.59% versus 1.585% versus 1.503% versus 1.54% versus 1.558% versus 1.51% versus 1.46% versus 1.50% versus 1.51% versus 1.56% versus 1.57% versus 1.56% versus 1.558% versus 1.58% versus 1.56% versus 1.59% versus 1.58% versus 1.53% versus 1.47%
EUR/USD: 1.12318 versus 1.12661
Historical: 1.12661 versus 1.1239 versus 1.12554 versus 1.11545 versus 1.11943 versus 1.11572 versus 1.1146 versus 1.11708 versus 1.11949 versus 1.12894 versus 1.1300 versus 1.13045 versus 1.3254 versus 1.13251 versus 1.1342 versus 1.13036 versus 1.12773 versus 1.11824 versus 1.11636 versus 1.11372 versus 1.11803 versus 1.1115 versus 1.1080 versus 1.10882 versus 1.1130 versus 1.1148 versus 1.1219 versus 1.1164 versus 1.1173 versus 1.10806
USD/JPY: 102.685 versus 102.439. After a massive Tuesday drop, the dollar recovered lost ground back up to the 50 day MA's, but that still keeps it in the downtrend channel.
Historical: 102.439 versus 102.439 versus 101.698 versus 101.412 versus 103.92 versus 103.226 versus 103.269 versus 102.965 versus 102.160 versus 101.808 versus 100.485 versus 100.306 versus 100.27 versus 100.297 versus 100.21 versus 99.843 versus 100.529 versus 100.953 versus 101.308 versus 101.864 versus 101.23 versus 101.857 versus 102.356 versus 101.832 versus 101.178 versus 101.256 versus 101.09 versus 102.599 versus 102.045 versus 104.679 versus 105.98 versus 104.731 versus 105.76 versus 106.05
Oil: 45.99, -1.74. Big recovery Tuesday through Thursday. Friday oil tested that move, coming back to close just over the 50 day SMA.
Gold: 1334.90, -7.10. Big move through Tuesday then fading much of that move Wednesday to Friday. Hanging in at some support . . . for now. If the Fed hikes and if the ECB does not expand its QE, gold loses some of its support.
MONDAY
As noted in the Market Overview, you have to respect the power of the downside. Even if there is a reflex bounce early next week it has to show it can hold in the face of that selling.
For now we are using a bounce to let upside plays holding their trends continue working, hopefully to take some gain. Others that are more problematic we use a bounce to close.
For new positions, of course we will look at some upside as there are some still very good patterns and on the circumstance the market shakes off this downside day and continues back to trending higher. Downside of course is very important, but we would prefer a rebound to set up better entry points versus where the closed Friday. Some are not oversold and can be entered on further selling, but overall, a little bounce is a better setup to enter.
Watching leadership groups offers clues, e.g. chips, financial, oil, Chinese stocks. A market has to have leadership to move higher, and if more of the leadership groups reverse trends or break patterns then the upside's chance of reasserting itself diminish.
Again, you have to respect the sharp selling, and use the moves next week to set up for the next move.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5125.91
Resistance: The 50 day EMA at 5138 5162 is the early November peak, 5176 is the December intraday peak 5231.94 is the 2015 all-time high 5271.36 is the August 2016 intraday all-time high
Support: 5100 from the April peak and early May peak 5042 is the March 2015 high 5008.57 is the early March 2015 post-bear market high 5007 is the 12/31 upper gap point from that big gap lower 4999 is the October upper gap point 4980 is the June 2016 peak 4969 is the April 2016 recovery high 4960 is the September 2015 intraday high, an important reversal point for NASDAQ. 4920 is the lower gap point from mid-October 2015, the January 2016 lower gap point 4916 is the mid-November 2015 low 4899 - 4902 from the September 2015 peak, July 2015 low 4894 is the September 2015 closing high The 200 day SMA at 4874 4836 is the March 2016 peak 4815 is the December 2014 peak 4811 is the November 2014 peak (intraday) 4774 is the January 2-15 high 4751 is the January 2015 lower high 4684 is the May 2016 test low 4637 is the February intraday high 4620 is the February 1 closing high 4615 from September 2014 highs, October 2014 upper gap point, late August 2015 low. 4574 is the June 2015 low 4517-4506 from the September 2015 and August 2015 closing lows 4485 are the twin July 2014 peaks
S&P 500: Closed at 2127.81
Resistance: 2130 is the June 2015 peak 2135 is the May 2015 all-time high The 50 day EMA at 2157 2175 is the June 2016 high 2194 is the August 2016 all-time high
Support: 2126 was the April 2015 prior all-time high 2120 is the June 2016 peak 2119 is the February 2015 intraday high 2116 is the November 2015 high 2111 is the April 2016 recovery high 2104 is the December 2015 high 2094 is the December 2014 high 2079 is the intraday all-time high from November 2014 2062 is the January 2015 lower high The 200 day SMA at 2057 2046 is the July 2015 closing low 2040 is the March 2015 closing low 2026 is the May 2016 low 2023 is the November 2015 low 2020 is the September 2015 intraday high 2011 is the September prior all-time high 1995 is the September 2015 recovery peak 1991 is the July 2014 high
Dow: Closed at 18,089.69
Resistance: 18,100 to 18,181: interim peaks in the December 2014 to July 2015 range 18,168 is the April 2016 recovery high 18,247 is the August 2016 low 18,288 from March 2015 The 50 day EMA at 18,345 18,351 is the all-time high from May 2015 18,595 is the July 2016 peak 18,669 is the August 2016 all-time high
Support: 18,016 is the June 2016 peak 17,978 is the November 2015 peak 17,600 is the rough bottom of the April to June range. The 200 day SMA at 17,566 17,351 is the September 2014 all-time high. 17,265 is a December 2015 closing low 17,245 is the November 2015 closing low 17,152 is the mid-July 2014 post bear market high 17,068 is the early July 2014 peak 17067 is the December 2014 low 17,063 is the June 2016 low 16,970 is the June 2014 former all-time high 16,946 is the June 2014 peak 16,933 is the September 2015 recovery intraday peak
ECONOMIC CALENDAR
September 9 - Friday Wholesale Inventories, July (10:00): 0.0% actual versus 0.0% expected, 0.3% prior (no revisions)
September 13 - Tuesday Treasury Budget, August (14:00): -$64.4B prior
September 14 - Wednesday MBA Mortgage Index, 09/10 (7:00): 0.9% prior Export Prices ex-ag., August (8:30): 0.3% prior Import Prices ex-oil, August (8:30): 0.3% prior Crude Inventories, 09/10 (10:30): -14.513M prior
September 15 - Thursday Initial Claims, 09/10 (8:30): 263K expected, 259K prior Continuing Claims, 09/03 (8:30): 2144K prior Retail Sales, August (8:30): -0.1% expected, 0.0% prior Retail Sales ex-auto, August (8:30): 0.3% expected, -0.3% prior PPI, August (8:30): 0.1% expected, -0.4% prior Core PPI, August (8:30): 0.1% expected, -0.3% prior Philadelphia Fed, September (8:30): 0.0 expected, 2.0 prior Current Account Balance, Q2 (8:30): -$122.8B expected, -$124.7B prior Empire Manufacturing, September (8:30): 0.0 expected, -4.2 prior Industrial Production, August (9:15): -0.3% expected, 0.7% prior Capacity Utilization, August (9:15): 75.7% expected, 75.9% prior Business Inventories, July (10:00): 0.1% expected, 0.2% prior Natural Gas Inventor, 09/10 (10:30): 36 bcf prior
September 16 - Friday CPI, August (8:30): 0.1% expected, 0.0% prior Core CPI, August (8:30): 0.2% expected, 0.1% prior Mich Sentiment, September (10:00): 91.5 expected, 89.8 prior Net Long-Term TIC Fl, July (16:00): -$3.6B prior
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