Stocks opened lower yesterday, and the bears kept the pressure on all day while the bulls did little to resist. The Dow ended the day down 138-points, the S&P 500 was down 0.63%, small caps of the Russell 2000 lagged again down 1.48%, and the I-fund lost a modest 0.21%.
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After a long string of positive Tuesdays the market has now been down 2 of the last 3 Tuesdays, and those losses have not been small. The overhead resistance has been persistently tough to break on all of the major indices. The good news for the Dow and S&P is that the resistance is near all-time highs. For the Nasdaq and small caps, it is resistance from a descending trend that continues to hold it back.
The SPY (S&P 500 / C-fund) has been moving sideways for the last four days, moving above and below the 20-day EMA. Except for a couple days of a failed breakout, it has been trading in a tight range between 186 and 188 for about a month.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Normally the sideways action in a bull market would be a good thing, waiting for the breakout, but the action in the Nasdaq and small caps are keeping us from being comfortably bullish at this point.
The Nasdaq is developing an ominously large bearish head and shoulders pattern, and we'd need to see a meaningful move higher to negate that. There is a pennant formation (orange) in the right shoulder that may give us a clue which way the shoulder will go, but pennants also have a habit of faking a breakout one way, only to eventually break the other way. The market loves to get us leaning the wrong way.
Chart provided courtesy of of www.decisionpoint.com, analysis by TSP Talk
The Russell 2000 is back below the 200-day EMA after a one day reprieve above it on Monday. This chart needs some help quickly.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Dow fell below the 50-day EMA yesterday and is flirting with the rising support line. The red rectangle is marked, not to show what I think will happen, but rather how quickly things can fall apart when things breakdown. If we start seeing the rising trendline break in the Dow, which the Naz and small caps have already done, that will be a pretty big warning sign.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The Transportation Index still looks OK, but that rising wedge is getting a little obvious. This is another bullish chart that is flirting with a breakdown. It's hard to ignore. Some upside action here would really help.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Bonds got some attention while stocks were falling. That's expected. The open gaps are still there which may lean toward at least a little more downside for bonds, and possibly another pop higher for stocks if that happens.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
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Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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