9:05am (EST)
We could tell going into Tuesday’s action there was going to be some scary, downside pressure as futures were pointing towards another triple-digit loss for the Dow. The bulls were still reeling from Monday’s rout following a breakdown of major support levels and the bears had one goal in mind – a BEAR market.
Of course, we warned our subscribers that the market could see new LOWS back in August but we weren’t, and still aren’t, calling for a bear market. In technical terms, a bear market is when an index declines 20% from its peak. From there, the market will continue in a “bear market” or it will rebound. There is also the possibility of a “dead cat” bounce which we mentioned in our 1pm update with the market mixed.
Here were our thoughts on August 7th with the Dow at 11,444:
“The chart below shows the next wave of support at 11,000 (top black line, blue circles) while resistance is at 11,600 (orange line). However, serious technical damage is being done which is threatening the bull market that has been strong (red line) for so long. If the 11,000 level fails then there is a chance 10,750-10,500 comes into play but we would be prepared for a test down to 10,000 (bottom black line, blue circles).” (END)
The Dow fell to a low of 10,404 yesterday before closing at 10,808, up 153 points.
With the S&P 500 just below 1,200 we also said:
“The S&P 500 slipped less than a point but finished below the 1,200 mark at 1,199. The index traded to a low of 1,168 which was halfway near our 1,150 target (top black line, blue circles). The bulls made a run back to a high of 1,218 but we knew when 1,225 didn’t print at the open the rally could fizzle. There is further risk down to 1,100 if the selling pressure continues but we have penciled in 1,050 (bottom black line, blue circles) just in case.” (END)
The S&P 500 traded to a low of 1,075 yesterday before closing with a gain of 25 points, or 2.3%, and settled at 1,124.
The Nasdaq closed at 2,554 the first weekend in August and here were our thoughts:
“The Nasdaq also finished lower by dropping 24 points to settle at 2,554. Tech continues to look like a train wreck and dipped to a low of 2,464 on Friday once the 2,500 level was pinched. We mentioned the possibly of 2,400 coming into play (top black line, blue circles) and further support lies at 2,350 but the bears could target 2,200 (bottom black line, blue circles) if things gets ugly…” (END)
Tech touched a low of 2,298 on Tuesday before rebounding triple-digits to finish with a gain of nearly 70 points to end at 2,404.
The action felt like “capitulation” selling but it happened too soon. We would have liked to have seen a calmer market and an orderly selloff but Wall Street was throwing the babies out with the bathwater.
You need to look no further than the VIX to judge exactly how wild trading really was.
The S&P Volatility Index (^VIX, 40.82, down 4.63) fell 10% after peaking at 46.88. We have been calling for a print of at least 50 on the breakout above 40.
So, was yesterday’s rebound for real or was it just a pop off the lows following days of massive losses and weeks in a tight trading range?
To complicate matters further is that on August 12 we also gave specific bear market targets for the major indexes and we have been going over them for the last few weeks in our Weekly Wrap. For the Dow we said 10,248 would represent a 20% decline from the late April high. This target is still 156 points from yesterday’s lows. No check.
For the Nasdaq, on August 12, we said watch for 2,298. Tech traded down to exactly this level on Tuesday 2-2-9-8. Check.
For the S&P, our target was 1,090. The index hit 1,075 which is a 20+% drop from the April high of 1,365. Check.
We also said we would wait until mid-October before deciding the next TREND which could have been a continuation of the bear market that has lasted for 8 out of 10 weeks. Or, we were hoping the market was going to come down slowly, hit our bear market targets once we got the official word on a Greek bailout, then bounce on good news – or – continue lower on a Europe meltdown.
Well guess what, Gus? Tuesday’s test to the lows was on news that the bailout package to Greece was now being delayed until NOVEMBER. Previously, Greece has said all along they would be broke by mid-October, but it now appears they have been sandbagging their numbers and say they have enough loot until Thanksgiving. The game of turkey is getting dangerous and somebody is going to get plucked.
The bottom line is that we expect volatility to continue but it’s hard to see the bulls making a major run until we get the official word on Greece. So, while we expect the market to continue to work a little higher off yesterday’s 52-week intraday lows, we don’t think a bottom has been hit, yet.
The good news? We have given you the road map on where this market is headed, where it’s been, where it’s going, and where it could be. We said in August that we would be entering one of the BEST times, ever, to play the market due to the volatility. Nothing has changed and we have been hot since mid-August closing 12-out-of-14 winning trades.
Futures are pointing towards a slightly higher start: Dow futures are up 15 points; S&P futures are 2 points; Nasdaq futures are up 3 points. Subscribers, check the Members Area for the updates.
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