Stocks opened higher on Thursday but the sellers were not far off and we saw a very weak afternoon of trading. By the close the Dow was down 75-points and the losses were about a half of a percent in the major indices.
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Bonds rallied as investors looked to move money elsewhere, but they still can't seem to get above resistance. Any further selling in stocks could change that.
The futures fell on Thursday evening as the President announced he will take military action against ISIS in Iraq, so we'll have to see if that translates into a negative open on Friday. It seems the market has been sniffing out something like this for weeks.
The SPY (S&P 500 / C-fund) has been sliding since that big 300-point decline in the Dow last Thursday, with little relief along the way. I noticed that we had an open gap just below 190 and perhaps that is the downside target? There is also an open gap above so it will get pulled in both directions eventually. Take a look at that PMO indicator. It is below the -0- point for the first time since late January.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
This view going back to January shows a couple of interesting reasons that the current lows might hold. One is that the 100-day EMA has only been broke twice since January 2013 (one this past February) and both times it was just a matter of days before it was recaptured the EMA.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Also, the neckline of the old inverted head and shoulders pattern above, that I am sure I dwelled on back in the spring, is now being tested and often that can act as support. It is usually tested much sooner than the 2+ months we waited this time, but it could still work.
The Russell 2000 has created a bear flag and is trading below the 200-day EMA. Those are not usually very good signs except that we saw similar action resolve to the upside in May.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
I haven't mentioned the Nasdaq in a while since the weakness in the small caps took most of my attention, but the Nasdaq 100 (QQQ) has actually held up well, holding at the 50-day EMA, and if the stock market is going to rebound, it may need to start here. The bad news is the head and shoulders pattern that has formed. In a bull market, an H&S pattern can be considered a continuation pattern, which would be good as it would break to the upside. But that's not always the case. H&S patterns are very bearish in down trending markets. This chart is still in an uptrend, so we shall see.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Bonds rallied but that resistance line is still holding on the AGG. If stocks keep falling I can't see how this won't breakout to the upside, and I have to admit it looks like it wants to breakout. That probably wouldn't be a good sign for stocks.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading! Have a great weekend!
Tom Crowley
Posted daily at TSP Talk Market Commentary
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