Where to start on a recap session/week that saw a tremendous erosion in price and market psychology? The basics are pretty stark - each major index, with the exception of the the MidCap 400, closed well below their respective 200 day MA's. The MidCap is 1% above its 200 day MA. Breadth was awful for the 3rd straight session and the last 30 minutes of trading was a bloodbath as buyers moved to the sidelines ahead of the weekend. The week ended with the largest % drop in the DJIA since March 2003 and with it went the bulls as the AAII bulls vs. bears reading dropped to its lowest level since (surprise March 2003). Is it time for a contrarian play and begin to buy this market? Time will tell...however, I would CAUTION against being a HEAVY SELLER in today's trading session. I have a rule - and that rule is after 3 velocity driven sessions in a row - I take my foot off the gas, take profits and start to look for a consolidation trade at higher/lower levels depending on the recent direction. Today is no exception to that rule. Be extremely careful selling dips to establish fresh shorts in this environment.
One of the aspects of this decline has been a bit of the sell now ask questions later variety. As I have pointed out repeatedly over the past couple of morning updates - the marketplace is faced with the possibility of a double whammy. Higher rates and little or no economic growth. While this theory is not fully discounted in the marketplace - a 5% drop in 3 trading sessions let the trader realize what is on the table. The table being our next directional move - and why? If this market consolidates at higher levels the next few sessions - and even the next couple of weeks it does not mean that the broader theory is off the table. These developments take time.
Support in the SPM should be found between 1135 and 1134, 1132.20 to 1131.50 is critical support as this will roughly equate with 1130 in the cash market. On the resistance side - 1143.50 to 1145, 1149 to 1150.30, 1153.50 to 1154.50. Any 30 minute close above 1155 is moderately positive, but, will most likely prove to be towards the possible high end of a trading range - not the beginning of new leg higher.
The NDX is moving into the target zone outlined last week between 1425 and 1400. I anticipate support in this zone and any minor moves below this range - 1395 area could signal a near term bottom today. I would be very cautious adding fresh shorts to the mix at lower levels in this index.
Finally, since I have been writing this update - the SPM rallied from 1138 to 1146.50 on the heels of Bank of America's Chief Equity Strategis Tom McManus raising his equity allocation for the first time in two years. Be skeptical of this bounce. MMM has also reported earnings that were in line with market expectations. After the close TXN will be a focus for the tech sector.
