SHORT TERM: stocks selloff following China and Europe’s lead.
Overnight China declined nearly 9% on profit taking and fears of government intervention to slow down their booming economy. While the rest of Asia was relatively subdued, Europe dropped 2% before our market even opened. Europe ended their trading day about 3% lower. When our markets opened on a gap down in price, both the SPX/NDX touched support and held in the first few minutes. At about 11:30 the cyclicals started to break short term support at SPX 1432 and headed lower. The tech sector held until about noon, when it too broke support at NDX 1792. I noted both of these levels in this mornings update. At 1:00 the market resumed selling off, and by 2:00 a selling panic hit, pushing the DOW down more than 500 points for the day. The panic selling subsided by 3:00, and the market bounced wildly into the close. At the close all the indices we follow were down between 3% and 4% across the board. Intermediate wave three (iii) announced its conclusion, with this nasty reminder of how fragile the markets can get at times. Bonds surged 1 1/4 points as a safe haven. Crude and Gold were also sold during the mini-panic: Crude was down $1.00 and Gold was $26.00 lower, but the Euro rallied.
We are still in a bull market! But the medium term trend is now down, and this is only a correction.
For the past few weeks many of the negatives holding this market back were getting resolved, except one. The rising wedge formation, commonly called a diagonal triangle, or ending diagonal, remained in place. When the techs started to rally a week ago, it appeared that this potential diagonal, like so many others, would be resolved to the upside. I was too bullish medium term. When the market broke through the lower leg of the diagonal today, it clearly acted as it should upon completing a diagonal, with a sharp selloff. The sloppy uptrending market in recent weeks was apparently a series of threes that completed exactly at the EW pivot SPX 1462. Intermediate wave three (iii) completed at SPX 1462, and we are now in Intermediate wave four (iv).
Now that the market is in a correction there are two obvious short term pivot points that should provide support: the first being SPX 1378 and the next SPX 1361. We’ll monitor these two levels over the next few days and weeks. For today I will work on getting the charts in order, and determine what other information can be derived from them. Best to your evening!
MEDIUM TERM: neutral
LONG TERM: bullish.