Good Day Traders,
Aloha Active Trend Traders! I’ll be visiting Hawaii this week and up every morning in order to provide updates to what’s going with the market and our picks. As I said last week we lived in Hawaii for many years so for us it home to our family! If you know anyone on Oahu who might like to learn about picking great stocks, I’ll be presenting to the Honolulu MeetUp out in Pearl City Thursday night!
Here’s the link to the group and direction: http://www.meetup.com/ibd-355/
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General Market Observation: A few weeks ago we mentioned that the Indexes reminded me of the story about the little Dutch boy holding his finger in the dike. Well it appears he may have gotten tired last week and finally walked away. When the Indexes reached levels where buyers showed up previously, this time around-buyers didn’t show up! So for the time being the sellers ruled the day and the week! The correction accelerated on all Indexes with the SPX and NDX gaining traction to the downside! If we go into a more severe downtrend, then expect price to bounce up first thing in the morning and then fail later in the day. This type of action happens quite often in a Bear Market.
While the market has a negative sentiment, there are several indictors that may be point at least to a relief rally including VIX for the SPX. VIX moves in the inverse direction to the Index and has reached a strong resistance area where turn around moves have taken place in the past. This could be a silver lining, but now guarantee that lower prices are not in store. We may see a scenario work out with lower prices and positive divergence in the indicators, which may be signal prices starting into the end of year tradable rally.
SPX: Friday’s price movement took the SPX down 5.6% from high of the year and close to the past swing low support at a 1904.78 price. We have now had a round from the lows of August. This is not indicative of a healthy market but what do we do right now. Look on the right side of the upside down cup that completed on Friday. The wide and loose, chaotic price action over the past month has been giving clues to the weakness. Over the past two years we’ve only had one correction approaching 5% and that pattern looked a lot tamer than what’s currently happening. Will the SPX find its foundation at the 200 day SMA and start a constructive base to repair the damage done over the past few weeks? We shall see, one thing that is clear is that the character of the market looks to be changing-full on Bear Market? We shall see.
Another take away from this chart is count the days or go to a weekly chart and count the weeks on the left side of the upside down cup and then the rapid decent of the right side. This highlights the rule of thumb that market fall about 1.5 -2 times as fast as they go up!
With two rally attempts in past two weeks being voided, the underlying strength remains suspect until price proves itself and that will not just be a couple of days rally attempt.
Nasdaq 100: Down over 6% from this year’s high. Similar to the SPX price action looks to be completing a cup like pattern. One can make a case that the longer term pattern appears to be a left shoulder and head of a potential bearish head &shoulder pattern. A relief rally would potentially sketch out a right shoulder. A couple other scenarios could also work out which includes consolidation at this current support or at 3848, or a break of this level and a continuation down. If price breaks this level the longer term downside target is 3571.63 which is a total correction of 13.38%. This amount would be about 7% away from being classified as a Bear Market!
RUT: Down over 13% from the yearly high and the complex head and shoulder like pattern has failed to the downside! If we are starting a stair step correction then we would expect support at 1010 which is down another 4 % from current levels. Since price lost support at 1082.73, the measured downside technical target is about 951 or a drop of only another 9%. It has taken about 100 days to drop 13% so a similar amount of time may be required to hit a lower target if we get some back and fill relief rallies along the way! The weekly chart below shows projected price levels for a completed fulfilled downside target from the H&S pattern.
Note for Active Trend Trading Members: I try to maintain neither a bullish nor bearish bias in my analysis each week and simply provide observations of how the price action is behaving. If the observable clues stack up to favor sellers then I will move in that direction. However if anything changes in the price behavior I evaluate how the convergence of clues and can switch directions quickly. In other words we attempt to be on the correct side of what the traditional technical analysis tools are showing!
Summary of Monthly Closed Trades as of the Oct 10th since June 1, 2014: