The eveningstar patterns on the daily charts of the DJIA and the S&P 500 index may have foreshadowed some level of pullback in the broader market, but it is too early to say with any certainty, considering there are several hours of trading left in this session and a full day tomorrow, and given the ranges and oscillations we’ve seen this week.
Caterpillar (CAT) is bouncing off the intersection of its 200 day moving average and a six month horizontal trend line, in the $100.00 area. The relative strength index and the money flow index, a volume-weighted relative strength measure, are in oversold zones and it looks like this bounce has some strong technical support.
The European markets began the decline to their August lows in early July, and were followed later that month by the broader US markets. The bounce off those August lows saw the DOW, the S&P 500, and the NASDAQ all reach new highs, and the major Europe iShares funds recover various Fibonacci percentage retracements – but not new highs. Since establishing their September highs the Europe IShares have continued lower, and while all the US indices except the Russell saw brief new highs, now as in the previous cycle, the broader US market is following Europe lower.
The support lines that I’ve been highlighting on the daily charts of the DOW, the S&P 500, the NASDAQ, and the Russell 2000 indices were broken in yesterday’s session. It is up to the 50 day moving averages to lend support to the first three, and the August low to restrain the Russell decline. A bounce is all I expect at this point, however, until there is a halt to the European decline and some signs of a reversal or basing process in those funds.
Shares of Reynolds American (RAI) rallied sharply off their February low this year, then pulled back from their July highs and began moving in a triangular consolidation pattern. The stock price is breaking below the pattern support line in today’s session and any continued breakdown could become volatile. Bollinger bandwidth has contracted to a point, which, in the past, has seen volatile moves following periods of consolidation. A close below support in lower candle range would be a good risk/reward short entry point with a buy-to-cover stop above triangle resistance.
The major stock indices are looking vulnerable from a technical perspective. Eveningstar patterns have formed on the daily charts of the DJIA and the S&P 500 indices – these three-day bearish reversal patterns reflect a positive-to neutral-to negative transition, and they are forming right above important trend line support. The NASDAQ and the Russell 2000 index, hit hardest over the last several sessions, are testing support of their own, with the 50 day moving average crossing under the 200 day average on the small cap chart.
The integrity of these support levels will be key the to the intermediate term direction of the broader market.
The U.S. indices held recent support levels this week, recovering from earlier session losses in the final hour of Friday’s trading, which formed hammer-like candles on the S&P 500 and DJIA charts. It was a lackluster week for the major Europe iShares, too, with those funds still unable to regain the first level of their Fibonacci retracements off the June highs and August lows.
The ProShares UltraShort 20+ Year Treasury (TBT) fund is back up above the zone that has marked its 2012 and 2013 lows.
The break below the short-tern trend line on the Linkedin (LNKD) chart suggests short-term trouble for the stock price. The MacD has been in bearish divergence for a month, Chaikin is below its 21 period signal average, and the RSI is moving out of its overbought zone.
During the first three months of this year, a cup-and-handle formed on the Exxon Mobil (XOM) daily chart, with rim line in the $95.75 area. The stock broke above this resistance in April and three months later achieved the pattern price target. A subsequent pullback below the 50 day moving average saw the stock price return temporarily to the 38% Fibonacci retracement level of its 2014 range, and then slide further moving under the 200 day average. It is now testing the original cup-and-handle rim line and the 50% retracement level. In Thursday’s session a solid looking hammer candle formed on this resistance-turned-support level, which is the first step in forming a base or initiating a rebound move.
Shares of Starbucks (SBUX) have been trading above $76.25 support for the last two months, and are once again testing that level. The relative strength index and Chaikin money flow have dropped below their centerlines, reflecting a decline in price and money flow momentum. Bollinger bandwidth has contracted to squeeze levels and any subsequent move could be volatile. There is a gap to be filled that, coincidentally, is a 38% Fibonacci retracement from the April low to the July high.
