Stocks took a nose dive shortly after the Dow had hit a midday high and a gain of nearly 100-points. The damage wasn't bad as the Dow ended the day down just 48.50 points, but the broader indices didn't hold up quite as well and the small caps shed well over 1%.
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China's Shanghai Index resumed its bearish ways losing over 3% on Wednesday after having rallied about 10% since their 1-week vacation in early October.
Oil was down and that chart is starting to show signs of rolling over again. Good for consumers but a possible sign of economic weakness.
The SPY (S&P 500 / C-fund) has been flirting with the 200-day SMA (pink) where a couple of other resistance lines may be converging, so that 204 level may be a tough one to break, especially on the first attempt. The 200-day EMA (dark blue) may try to hold up as support since it has closed above it for 5 straight days now. There's not really any magic in these moving averages as often they are just self-fulfilling prophecies as investors and traders know where other traders may look to sell, so they don't want to be the last one out the door. 
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The Dow Completion Index (small caps / S-Fund) pulled back sharply from what may be the neckline of an inverted head and shoulders pattern. It remains in the right shoulder (RS) but any more selling could see it start to test the middle of the head, which would also be an attempt to fill the open gap near 1000.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
Some inverted or inverse H&S patterns breakout right away and some pullback to test the middle of the head first.
But head and shoulders patterns, inverted or not, tend to be continuations patterns meaning they break in the direction of the trend they were in before it formed, and in this case that would be down. So there are a lot of considerations here for the small caps.
China's Shanghai lost 3.06% yesterday and that was the first sharp decline in a bout a month. This index is still in a bear market and it is hitting levels that could be trouble during a bear market having fallen back below the 50-day EMA (purple). The 20-day EMA (green) held at the lows yesterday.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
I saw that Goldman Sachs was one of the worst performers in the Dow yesterday so I decided to take a look at the financial sector to see where it stands. The XLF is a financial sector ETF and it had actually been up early yesterday but it has run into the 200-day EMA and paused. This could be an important sector to watch and see how it reacts to this technical resistance.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The price of oil continues to pull back from the early October high above $50. There's some support near 44 but it is now back below the 20 and 50-day EMAs.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
The AGG (bonds / F-fund) closed higher yesterday and is in the middle of its rising trading channel. Why bonds are holding up so well is a little concerning for the stocks market, although only in this environment of continued cheap money would a weakening economy seem to be beneficial for stocks in the form of sustaining near 0% interest rates from the Fed, although we've been living it for several years now.
Chart provided courtesy of www.stockcharts.com, analysis by TSP Talk
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Thanks for reading. We'll see you back here tomorrow.
Tom Crowley
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