I picked the wrong week to go on vacation (or maybe the perfect week). You probably don’t need a rehash of all the gory details from me, if you have been following the tests and retests of the key technical levels that I’ve been highlighting for months, you know where we stand. One thing I will note is that 27% of the stocks in the S&P 500 index are below their 50 day moving average. This is a very low reacing and at levels where we have seen the market recover in the past. (This is a weekly chart and the candle is not fully mature.)
There is a bearish divergence between the stock price of the 3M Company (MMM) and the S&P 500 Index, and while this may not seem important there is an interesting technical connection that suggests otherwise. The graph between the S&P and MMM charts is the correlation coefficient, an indicator that measures the price action between two stocks or in this case a stock and an index. It’s positive when they move in the same direction, and negative when they move in opposite directions. MMM and the index have been very closely correlated for years, that is until April of this year when MMM started to roll over and the S&P continued to rise above trend line support. It remains to be seen if the stock is acting as a leading bearish indication or it will correct and move back into agreement with the index, but it is certainly something to monitor.
When a stock or an index closes on its low even a less than three quarter percent decline can look ominous on the chart. It was a bad day across the board but the resistance levels that were broken last week are acting as support this week and remain intact. The implied stronger open this morning is something of a relief because the DJIA is back below its 50 day moving average and sitting on its declining trend line, looking in fragile technical condition. The S&P is not far behind, and even the strong looking horizontal resistance-turned-support levels on the Russell 2000 Index and the NASDAQ Composite could not withstand another broad sell-off like we saw yesterday. This market has been confounding sometimes but always resilient.
The Dow Jones Transportation Average ($TRAN) looked like it had made a triple bottom after bouncing off recent lows and heading back up to retest April resistance. Unfortunately, the average is getting hit harder today than the broader market indexes, down nearly 2%, and looking more like it is headed back to retest this month’s lows. The positive spin is that it wants to make a quadruple bottom.
Small gains and hardly decisive action of the index charts, but the more time the DJIA and the S&P 500 index stay above their 50 day moving averages, the more time for better things to develop. The same goes for the Russell 2000 and the NASDAQ Composite, and holding the new high breakout level is the key to the sustainability of their moves.
Once again, SPY volume as a percent of the 50 day moving average of volume was poor.
The major indices reversed their Friday losses in Monday’s session, with the NASDAQ Composite and the Russell 2000 Index, closing at all-time levels. High wick or moderately high wick candles formed on the DOW and S&P charts, which make some suggestion that those indices were unable to hold what would have been new highs for the month, and the NAZ and Russell ranges were narrow with most of their gains coming off the opening gap.
On the SPY daily chart a “gravestone” doji formed at the top of its channel range. This candle has a narrow opening and closing range situated at the bottom of its overall range. It reflects price that was pushed higher early in the session by the bulls, but rejected and later taken down by the bears. A single doji represents indecision. Volume on the SPY was 33.6% lower than the 50 day moving average of volume.
These observations may be too fine-tuned because the resistance lines taken out last week on these index charts remain intact and the overall trend is still higher, but watch the volume readings on SPY, as it further tests the channel top.