The major indices closed just about where they opened forming doji candles on their daily charts. These doji candles follow previous session high wick candles and in that context reflect some technical weakness. There is the possibility that bear flags could be forming on these charts, but there is also the possibility they may be forming bases. Take a look at the 10 minute SPY chart. A break above the $193.80 from the base formed today could change the negative look of these charts.
Shares of Apple (AAPL) are testing their 50 day moving average.
The weekly chart shows this test occurring near the September 2012 high, and at the same time the RSI and the Money Flow Index, a volume weighted relative strength measure, are moving out of overbought zones. I highlighted this condition last month. These indicators were simultaneously overbought in March and September 2012, and significant pullbacks in the stock followed.
The broader market indices have been trying to consolidate for the last week after the sharp declines in the previous week. The question is: are they forming a base from which to move higher or preparing for the next leg lower?
Time will be a crucial factor in determining the direction of the markets. The longer they hold current levels the more they can repair and retool, which would instill more confidence in traders and investors. A break from these levels, of course, would have the opposite effects.
The price action over the last two weeks has formed what could be interpreted as bear flags on the S&P 500, DOW and NASDAQ daily charts, but it remains to be seen if they contribute to any future downside action or they are negated by continued horizontal consolidation and a return to trend.
The major indices were unable to hold early session gains and while the deterioration later in the day was not severe, indecisive spinning top candles formed on the DOW and S&P 500 charts, and high wick or rejection candles formed on the NASDAQ and RUT charts.
This irresolution leaves the indices at greater risk to the influence of an outside force, but that influence doesn’t necessarily have to be negative. Some positive news tomorrow from the European Central Bank would certainly be welcomed by our market.
The major Europe iShares continue to be a drag on the U.U. markets. We have been highlighting this chart for sometime, and it shows the multiple breakdowns of trend line support and key moving averages along the way. Yesterday, the Germany fund made a new low for the year, and with news out today it does look likely to recapture that level. Italy is in a triple dip recession, and, in general, all is not right with the world.
This said the U.S. markets are a haven in times of economic or political distress and our bond market and currency have strong individual charts. We’ll take a look at those in a follow-up post later today.
Famed market technician, Tom DeMark tells Bloomberg that he expects the China market to top out within days and fall 10 percent. This projection takes the Shanghai Stock Market Composite Index ($SSEC) back down to the 2000 level, a long term area of support.
I mentioned this morning that there wasn’t much in the way of support other than a set of Fibonacci retracement levels on the DOW chart, and an internal uptrend line within the longer term rising channel pattern on the S&P chart. Those levels were breached in today’s sell-off. The NASDAQ has been trading in a horizontal channel for the last month and pattern support was successfully retested today. A breakdown from this level, should it happen, projects down to the April/May/June highs.
Why the pause this week in the broader market decline?
The DJIA average broke through the uptrend support line of a clearly defined rising triangle last week, then retraced 38% of its February/July range. There doesn’t seem to be much in the way of nearby support other than this Fibonacci level, but if nothing else it is a psychological point at which to attempt stabilization.
The S&P 500 index has been trading for over a year in a rising channel formation. It broke through a small internal support line drawn off the April/May lows last week, and has also returned to its February/July Fibonacci retracement level.
The NASDAQ Composite index dropped to the lower end of a horizontal channel it has been trading in for the last month, which happens to intersect with its 50 day moving average.
The NASDAQ index is in a more traditional technical area of trend line and key moving average support, and consequently I’ll be focusing on this index as a leading indication for the broader market averages going forward.
Wynn Resorts (WYNN) broke out of a four month triangle pattern on Tuesday last week, then reversed and by Friday had returned to the breakout level. Today it is forming a strong candle on resistance-turned-support, which suggests a successful retest and a move higher. The MacD has been in bullish divergence and money flow is positive.
If you don’t want to wait until 2100 to find out, here’s a look at some of the contents.