To say that the market is weak would be an understatement. What looked like a potential for more upside early last week was quickly reversed primarily due to the war in the Middle East. The market will depend on the geopolitical events next week. Any improvement in this region will lead to a rally, but if countries like Syria or Iran get involved, the market may suffer significantly bigger declines. Earnings and Fed policies will not matter as much over the next few days.
While S&P and the DOW are in a process of testing June lows (I expect them to be broken), NASDAQ has entered a free-fall environment. In fact, NDX and SOX have reached oversold conditions seen only four times over the last ten years. A similar condition in the past has either marked intermediate-term bottoms immediately or one-two weeks later. But in every case the market traded higher several weeks later. As mentioned before, the volatility will stay elevated and can potentially be out of control early next week.
NDX weekly:
Vertical lines on the NDX charts show 9-week RSI below 23 (just where it is today). Note that 200-week MA is just 3% below the current level. Another 3% decline in NDX can potentially be an intermediate-term low. Also if S&P declines another 3% or so, it will satisfy the first 10% correction and may find support somewhere in 1180 area.
We will be looking for longs later this week.
Dennis Leontyev
