On 12/11, Jim Cramer featured RightView Trading’s take on the technical condition of the major market indices on the “Off the Charts” segment of Mad Money. It is always a pleasure to be a part of the show and we thank Jim for that opportunity.
At the time, we noted that the major market index charts had arrived at a zone of support on their weekly charts. These areas was defined by the lows made in February and April this year.
When we made this observation the DOW, the S&P 500, the NASDAQ Composite, and the Russell 2000 were all above their lows for the week, and looked like they were attempting to bounce. The best case scenario we speculated, would be for the index charts to form a weekly hammer candle close. That is a close in the upper half of their overall range. This would infer a low was in place and a possible return to the November highs.
The support zone seemed like a logical place for a bounce, but that was not to be the case.
Instead of closing in the upper half of their range the Dow, S&P, and NASDAQ closed near their low and right on support. The Russell closed on its low but broke through its support zone.
While we were optimistic when we outlined the bullish scenario, we also looked at the alternative bearish outcome. What if these weekly levels of support were to give way? The Russell chart we speculated would give us an idea of how much lower the indices could go.
The small caps had led the broader market lower, the thinking was they might also, lead the market higher.
By taking the overall height of the Russell’s November consolidation range and subtracting that number from the 1450 support line, we projected a measured downside move of about 6.6%.
This would take the Russell back down to the 1340 level where there was buying interest in the first half of this year. It is also, the 50% Fibonacci retracement level of the 2016 and 2018 range. The 1350 level seemed like another logical place for the index to find support.
As it turned out, Chairman Powell was able to take the Russell back down to the projected 1350 level in a matter of minutes. The Federal Reserve quarter point hike and the statement that accompanied it took the entire market down on Wednesday. The DOW, S&P, and the NASDAQ all crashed through their support zones and finished the session near their lows.
In early Thursday trading the indices have continued lower, however, the Russell remains around its measured move target area, near the 50% Fibonacci retracement level. It is a long shot but there is one last possible bullish outcome to the weekly trading scenario.
The weekly candles are not fully matured, that is, there are still two days of trading to go in the week. If indices were able to rally and close up an equivalent 45 S&P 500 points from their present level, they would move back near their support areas and form hammer candles on their weekly charts.
It is a lot to ask in this current market environment and it is not a probable outcome, but the markets have experienced some volatile reversals recently and no one knows what the machines are going to do next.