Over the weekend, we anticipated that last Thursday’s rally was a classic case of “window dressing.”
Furthermore, I warned that “Sharks sense movement in the water.”
Coming into Monday, all the indices were in warning phases.
The warning phases have been accelerating in momentum with the declining slopes on the 10 and 50 daily moving averages.
Today, the S&P 500 was first to go into a Distribution Phase.
That means the price traded below the 200 daily moving average.
Then, the Dow and the Russell 2000 followed SPY into Distribution Phases.
The only holdout was NASDAQ. Amazing, as Amazon fell over 5%.
Facebook dropped nearly 3%, Google saw a 2.5% decline and Netflix declined by over 5%.
Interestingly, buyers came in and brought the Russell 2000 and the Dow back over their 200 DMAs; hence they closed in warning phases.
Moreover, whether the QQQs hold or fail from here will have an influence on the other indices.
Are the sellers too easily manipulated?
We like to step back to look at the weekly and monthly charts for perspective.
On the weekly charts of the indices-the S&P 500 broke below the 50 week moving average intraday (256.20), yet wound up closing slightly above it.
In August 2015, the SPY broke the 50 WMA and remained below there until the following May 2016.
Since May 2016, the SPY has closed every week above it. That means, as it is only Monday, we can look at a few factors before boldly stating that market is completely toast.
First off, if SPY holds 256.20, especially by the end of this week on a closing basis, then we will see a relief rally at the very least.
Secondly, with IWM, QQQ, and DIA still above their 50 WMAs, I’d watch 146.70 in the Russells for sure. If that level holds, that will allay some of the markets’ fears.
If not, then the SPY will confirm the warning phase on the weekly chart, which will put the 23-month moving average support at 241 as a do or die for most equities.
Finally, the head’s up I have given on gold (GLD), the Euro (FXE), the topping pattern in Semiconductors (SMH), the bullish phase in oil (USO) has helped traders find other places to park some money.
So, before you join the herd on the southern trail, know that goats are relatively easy to control, even when they are loose.
Nevertheless, goats are always a little jumpy and quick to panic. This could be beneficial for both the bulls and the bears, as they can be more easily pointed in one direction swiftly when they are in this state.
If the goats are not calm or at ease, they are more likely to run completely at random in any direction and without warning.
Safety in the herd? Maybe not so much right now.
S&P 500 (SPY) Unconfirmed Distribution Phase which means to confirm we must see a second close under 258.68 to confirm
Russell 2000 (IWM) Landed right on the 200 DMA but held it by the close. A gap below, I would follow it down-like a good little goat.
Dow (DIA) 234 the 200 DMA ultimately held
Nasdaq (QQQ) 152.75 is the 200 DMA-if holds will help the market. And then could see this move up to 161 area