This major U.S. Stock indices held their September low support lines, and now the next significant move should be determined by either a breakout to new highs or a breakdown below these lows.
The major Europe iShares have been moving within the Bollinger Bands measured off their June highs and August lows. Watch these guideposts for suggestions of future price movement.
Shares of McDonalds (MCD) touched the upper end of the $90.00-$90.50 zone today, an area that has provided support going back over a year, and the 50% retracement level of the 2012 low and the 2014 high. The rebound in the stock formed a large bullish engulfing candle that encompassed yesterday’s large range down day.
Amazon (AMZN) is at the first of two important trend line support levels. The weekly chart shows the stock price testing, for the third time this year, a long term uptrend line drawn off the lows since 2012. It fell through that support during the two previous tests but managed quick recoveries. A closer look at the same chart also shows the formation of a large symmetrical triangle over the last six months, with the uptrend line being the second key trend line. The dashed red line dissecting the triangle is a regression line, or best-fit straight line of closing price within the pattern. The uptrend line, the 10 week (50 day) moving average, and the regression line are all intersecting, and a violation of this area takes out the first key level of support.
Another break is less likely to see a quick recovery this time, and more likely to initiate a test of the triangle uptrend line, and a breakdown from pattern support projects a significantly lower price for Amazon stock. The price and money flow momentum indicators are still trending higher, but keep an eye on those support lines because indicators lag price.
The August low on the weekly chart of the 10- Year US Treasury Yield formed at the 50% Fibonacci retracement level of the 2013 low and the 2014 high. Currently, the 62% retracement level is being tested, along with the 20 day moving average. The declining average has acted as resistance for most of this year.
On August 23rd, I highlighted the formation on an eveningstar pattern on the General Electric (GE) daily chart. The stock price drifted lower the next week, and then attempted a rebound the following week, retesting a former two year uptrend line. Interestingly, over the last three days another eveningstar pattern formed on the chart, around the intersection of the 50 and 200 day moving averages.
The major indices dropped back down today to their lows for the month. A break from these levels sets up a retest of the 50 day moving averages.
This chart of the Shanghai Stock Exchange Composite Index ($SSEC) and the chart of Spot Copper ($COPPER) show both having traded under multi-year downtrend lines until this July, when the broad China index broke above its trend line. Usually well correlated, the spot copper price has continued lower under its long term downtrend line, underperforming relative to the Shanghai Index by 15% over the last two months.
I first pointed out the overbought conditions in the Relative Strength Index and the Money Flow Index on the weekly Apple (AAPL) back on July 9th, and noted that, in the past, these simultaneous readings often signaled the potential for a pullback in the stock price. The trigger to the trade was a cross below the 21 period average of the indicators, which I use as a signal line, or a bearish weekly candle. There have been daily bearish candle formations and technical support levels tested since then, and the stock has continued higher. This week, however, the RSI finally dropped below its signal line, joining the MFI, and a bearish engulfing candle formed on the weekly chart.
I would wait to see how the stock reacts around the new products announcement on Tuesday before taking a short position.
The European Central Bank lowered interest rates and announced that they were taking steps to help unlock lending in the Eurozone, by purchasing securitized loans and covered bonds next month. The interest rate move was expected, but it remains to be seen if the watered down Euro version of quantitative easing will be enough to bolster their equity markets. My take is purely technical of course, and I will continue to watch the performance of the Europe iShares around the key Fibonacci retracement levels, I have outlined in the past.
The DJIA was up 84 points in the first 30 minutes of trading, and then sold off into the noon hour. At that point, it attempted to recover but ultimately fell back below its previous lows. There was similar action in all the major indices, which formed shooting star candles on the DJIA and the S&P 500 daily charts, and bearish engulfing candles on the NASDAQ and the Russell 2000 charts. As I have been saying, it is unlikely that the broader U.S. market can continue to rally without a technical recovery in European stocks. That sector, as represented by the major Europe iShares funds, continues to be held back by Fibonacci resistance levels measured off their June highs and August lows.