06/25/13
Stocks dropped again yesterday as the Dow lost another 140-points. We did see a strong mid-day rally that was shaping up as a bullish reversal day, but by the close sellers took control again. The Dow did finish over 100-points off the low, but also 100-points off the high.
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[TD="align: right"] -1.21%[/TD]
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[TD="align: right"] -1.64%[/TD]
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China's Shanghai Index had lost 5% the night before and that set the tone for the early sell-off.
I didn't research this, but I heard someone on CNBC say yesterday that the week after options expiration week in June has been negative every year (or almost every year, I forget) for the last 14 years. Yesterday's 140-point decline is a start in keeping that streak alive, although the market is oversold and is either due for a bounce - or a crash.
The S&P 500 has now put in three closes below 50-day EMA, which is getting quite bearish and into my "3 to 5 day rule" of being an official breakdown. We'd need a pretty good rally here (about 3%) within the next couple of days recapture the 50-day EMA and nullify the breakdown.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
Even if we do see a relief rally it will be a tough job for the S&P 500 to get back above that 50-day EMA and particularly, the two intersecting resistance lines.
Closing well off the low helped push the S&P back above that descending support line (red), which isn't really much to be excited about since that support line is falling fast.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The key for me continues to be the pattern of the 1987 chart. The S&P 500 did rally in 1987, to test the bottom of the longer-term rising support line before the crash, and if that happens this year, we could see 1620 on the S&P on any snap-back rally, but in 1987 that rally lasted only a day or two.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
From May's high to yesterday's low, the Dow Transportation Index was down 10% and in correction mode. Being the leader, we have to be prepared for something similar in the S&P 500, which would take it down to about 1518 or 3.5% from the current level.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
At this point, the market is due for an oversold rally, but market crashes usually originate from a market already oversold. Playing for a bounce here may be the higher odds play, but if you're wrong the consequence will likely be quite painful.
Thanks for reading! We'll see you back here tomorrow.
Tom Crowley
Posted daily at TSP Talk Market Commentary
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