Downside Pressure Is Building
Axi | Aug 21, 2017 13:55
Originally published by AxiTrader
Last week the Nasdaq 100 completed its fourth week of losses, while the Dow Jones Industrial Average, and the S&P 500 were off for the second week in a row. The CBOE Volatility Index ended the week at 14.26 - off recent highs but equally well north of the 9's and 10's it had been averaging recently.
And of course the S&P 500 closed the week below a trend line which stretches back to the end of December 2016.
It's not like the indexes have been overcome by a marauding band of bears. But when I look at the charts they are looking vulnerable.
Here are the weekly charts:
S&P 500: A couple of weeks back, after the S&P hit a new record high, I wrote in my overnight wrap and said in my daily video and on SkyBusiness that I thought the high for this run was in.
In the intervening time volatility in the S&P 500's daily moves has taken a step up. That is a sign that the buy the dip crowd are waiting a little longer to step in as the turmoil in the White House and geopolitical uncertainty - not to mention uncertainty about whether tax cuts or infrastructure spending will ever be delivered - are taking a toll.
On the weekly chart, like the daily, the 2,400 level is the key short term for me as it represents both actual and psychological support. A break of this level would suggest that a move back toward the 38.2% retracement level of the rally since the election of Donald Trump has begun.
That level is 2,312.
My system is short. I'm targeting a test of 2,385/2,400 initially
Dow Jones 30: Like the S&P the Dow has had two down weeks and the break of a trendline recently. In the case of the Dow however, that trend line is only 3 months old and was steeper.
That steepness is important in suggesting a stronger pulse lower.
21,497 is the garden variety 38.2% retracement level of the recent up move which took the Dow to record highs. Further support at the 50% and 61.8% levels is at 21,302 and 21,106.
If this latter level gives way a round trip to 20,474, where the latest rally began is on the cards. That level is not too far from the 38.25 retracement level of the Trumponomics rally at 20.379.
It sounds a long way away. But it is worth noting that these are just normal - garden variety retracement levels - I have highlighted.
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NASDAQ: Prices have fallen for four weeks on the Nasdaq 100 and of the three big US indexes it looks the most vulnerable based on my system, which is short from just below 5,900.
A break of 5,760 looks critical for a further drop to ensue. Below that 5,726 is the last support before a move toward 5560 opens up.
5,450 is the 38.2% level of the Trumponomcs rally
I'm not uber-bearish by any stretch of the imagination. But the charts currently suggest further downside is possible over coming weeks.
Have a great day's trading.
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