Last week (Dec 14-18), I focused on FEAR and how to measure it. Bottles popped and the “Santa Rally” cries were deafening as the $NDX reversed +4.7% from Monday’s low to Thursday’s open. Sellers took total control at that point
The end result? Price took a 360 turn and all major indexes closed the week printing inverted candles below major weekly moving averages.
$NDX finisihed the week -0.92% and closed under the 10wma (4605) for a 2nd consecutive week, losing upward trend. More worrrisome, the $NDX ( as well as the $SPX) has printed 3 consecutive lower weekly closes. Support now @ 4470
Taking another step back, the $SPX monthly chart has lost its 10 & 20 averages (2042 & 2020). It is extremely important to note two things in this chart:
- Losing the 10/20 monthly avgs was only the beginning of the market crashes in 2000 and 2008.
- The exception was the 2011 drawdown, in which price “played” with the middle Bolli for 5 months before resolving higher. 2015 is now in month #5
In summary, my POINTS OF CONCERN:
- $SPX rejection of bullish 10/40 cross @ 2060. Remember this number as it may prove to be major resistance
- $NDX lost rising trend by closing under 10wma (4605)
- Given price reversal, the path of least resistance is lower. Weekly Bolli retest = $NDX -8.8% / $SPX -4.8%
- Per price action, reaction to Fed announcement was a textbook bull trap. Euphoria right into and after event to get the dumb money excited … just for the smart money to sell the news a day later
- $SPX monthly chart continues to deteriorate, displaying signs common of major market drawdowns
OK so charts took a major hit this week. But this post can’t be all negative. Below are some POSSIBLE POSITIVES to be discussed individually in detail below
- Daily $NDX (and $SPX) chart closed the week at lower Bolli, could be a nice spot for a short term bounce
- Seasonality favors upward trend starting Dec 15 into end of year
- $WTIC (Crude Oil) is 1pt away from its largest decline ever of -68% – cheap gas!
- As/If the $NAA50R approaches 20% (Nasdaq % of Stocks Above 50dma), we will have an excellent market entry
#1) $NDX Friday candle closed outside the daily bolli. Unless Monday brings absolute panic ala August, we could bounce here. For now, I don’t think a repeat of August happens here given Friday’s options expiration and seaosnality. Watch out for a possible bounce and follow through on Monday
#3) Charlie Bilello (@MktOutperform) reminds us the largest $WTIC decline EVER was -68% (2009) while current decline is at -67%. I indeed think we make a new record in the low 70s. However, I expect a mean reversion afterwards which could provide a major headwind to $SPX $NDX price action in early 2016
Allow me to be crystal clear – As long as the $NDX and $SPX trade under their 10 & 40 weekly moving averages, I am inclined to think a new bear market is starting. Until then, any bounces are treated as short term trading opportunities. The positives above will all need to confirm before going long again with a short timeframe in mind. I DO NOT recommend immidiately shorting the market due to possible support at lower bollinger bands on indexes. Best move right to start new positions:
New Longs – wait for indexes to close over 5ema ($NDX = 4580 / $SPX = 2033)
New Shorts – Good shot at another rejection from $SPX 2060 and $NDX 4600. Both could be major resistance
As always, thank you for reading. Trade ‘em well – Gio
Gio is a member of swing tradesetups, his insights are always welcomed by our members. We would love to see you as a member in 2016. JOIN!