Comment: A strong down day on high volume. Breadth (R2K) was poor. I mentioned yesterday that R2K hadn't been confirming the weakness in the Dow 30 and SPX. Well, that glimmer of hope at the end of the tunnel turned out to be an onrushing train. It broke down last night, as did the Nasdaq.
In Europe.
French CAC: -0.77% German DAX: -0.42% London FTSE: -1.11% Italy MIB: -0.29%
NewHighs/NewLows. 43/61. Ratio: 41.3%. NL>NH. Out of the “Do Not Sell” Zone (above 80%). New Lows are registering panic selling and New Lows are greater than New Highs for the first time in this pull back. Nasdaq NH/NL 52/40. Ratio: 56.5%. No panic selling evident in new Lows.
Technical Comment on the SP500 (closed at 1655.45)
Indicators:
MACD Histogram: Below zero. Negative. MACD: Marginally above zero. Neutral. RSI.9 is at 33. Oversold. Stochastic. 14.7. Oversold.. CCI.14: -186.6. Oversold. Money Flow: 33.5. Below its mid-line. Negative.
Support and Resistance:
40-Day TMA: 1675.7. Major Horizontal Resistance: 1709.7 (+3.28%) 150-Day TMA: 1639.4. Pivot Support from 26 July: 1676.03
The Pivot Support from 26 July was the Line in the Sand. Last night, SPX sliced through important supports - the July Pivot, the long term oblique up trend line from late 2012, and the 40-Day TMA. Every trader in the world has been watching that important oblique trend line. Sometimes such supports fail, and the market immediately turns to the upside.
Looking at the indicators, they're generally oversold. MACD still hasn't broken its zero line, so bulls have a bit of hope. Other indicators are getting low, but compared to the previous two pull backs this year, they can go lower - and still be within the normal range expected in a pull back. At this stage, however, there's no sign that this is giving up. Trends persist - until they don't.
Following are a few things that might affect our market on Wednesday (particularly Energy and Materials): US$ Gold ETF, -0.19%; Copper ETF, -0.77%; Light Crude Oil ETF, +0.46%; Coal ETF, -1.41%; Steel ETF -0.95%; AUD, -0.07%. The Ozzie Stocks ETF on the NYSE (EWA) -0.64%. BHP on the NYSE -1.1%.
Below is a chart of TLT (20-Year Bonds) with a Relative Strength indicator Bonds/Stocks (lowest pane). I showed this chart in the Weekend Report and yesterday. It's a good indicator of "Risk-on, Risk-off" sentiment. Bonds are a safe haven for investors when things get rocky. Last night, TLT was up +0.03%, but there's no sign yet of a rush to the safety of bonds. The Relative Strength indicator has tilted up indicating that Bonds are doing better than stocks, but that's a result of weakening stocks and not strengthening bonds. So this pull back looks like the action of traders rather than a switch in long term investment sentiment. That, of course, could change. But that's the way it looks at this stage. There could be a sharp rebound out of this fall as High Frequency Traders, who have information the rest of us don't have, engage in that famous circus act "Catching Falling Knives".
(20min delay)