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Just as it seemed like the Santa Claus rally may materialize, the market quickly reversed to the downside and had a massive 90.31 point drop in the S & P 500.
There were two factors that made the recent rally suspect to a continuation.
The major one was that the daily chart had already crossed into a downtrend. This happened in the middle of November and certainly questions the strength of the market.
In fact, I wrote about this event in a prior update. I mentioned that the last time the daily chart for the S & P 500 had a bearish cross was in September of 2015. At that time, the S & P 500 dropped twice to the lower band on the daily chart.
The first time the market dropped to the lower band, it bounced to the midband. The second time it dropped to the lower band, it began the major upleg we have seen into the top in September of this year.
The point is this. If history were to repeat and the S & P 500 drops to the lower band on the daily chart on this sell off, it would drop to a low of around 2,535.
The close on Tuesday was still about 165 points higher than the lower band.
The second factor that made me concerned that the upmove would stall out was that on Monday, the market gapped up and essentially formed a doji bar.
A gap after a run in either direction typically signifies that the move is over. And it certainly was on Monday.
And Tuesday the market gapped down at the open and continued to drop all day.
With a massive range of 90.31 points and a close at 3% of the daily price bar, we certainly expect the low of the bar to be violated before the high.
And the midpoint of the bearish long range bar should be strong resistance. That level is 2,741.56.
About the only bullish factor on a bearish day for Tuesday was that the down to up volume was 14.26.
A factor over 9 to 1 indicates a selling climax. And Tuesday was now the second selling climax in this pullback.
But, with the low close percentage and bearish daily bar, we certainly expect a move lower off the open. And we will certainly see that with the S & P 500 trading about 33 points lower before the open.
Where could possible short term support come in?
One possible area of support could be the 2,610 area. This is the lower band on the 60 minute chart. And 2,604 is the lower band on the 30 minute chart.
So, there should be support in this area.
And finally, the major 2,646.50 level should offer support. This is a key level for the markets and it appears that it will get retested.
Two closes under this level and I would expect the S & P 500 to drop to the 2,500 to 2,550 area.
Continue to monitor the levels as I mentioned above.
Here are the Key Levels for the Markets:
$VIX:
Major level: 31.25
Minor level: 29.69
Minor level: 26.56
Major level: 25.00
Minor level: 23.44
Minor level: 20.31 **
Major level: 18.75 <
Minor level: 17.19 **
Minor level: 14.06
Major level: 12.50
The VIX had a massive 25.5% spike to close at 20.65. It was up 4.20 on the day. We should most certainly see a continuation of that upmove today.
At this point, I am biased for a move up to the 25 area. Assuming the VIX clears 21.88, look for it to offer support.
SPX:
Minor level: 2,805.20
Major level: 2,793.00
Minor level: 2,780.78
Minor level: 2,756.33
Major level: 2,744.10
Minor level: 2,731.90
Minor level: 2,707.50
Major level: 2,695.30
Minor level: 2,683.10 **
Minor level: 2,658.70
Major level: 2,646.50
Minor level: 2,634.30
Minor level: 2,609.90
Major level: 2,597.70
After a three-level move to the upmove, the market now has had a two-level drop in one day.
The S & P 500 should open under the major 2,695 level and under the minor 2,658 level. The next level to the downside is the major 2,646.50 level.
With a projected open of around 2,665, I would expect resistance at 2,695 area, if the market can bounce.
On the downside, the key level should be 2,646.50.
QQQ:
Major level: 175.00
Minor level: 173.44
Minor level: 170.31 **
Major level: 168.75 <
Minor level: 167.19
Minor level: 164.06
Major level: 162.50
Minor level: 160.94
Minor level: 157.81
Major level: 156.25
The QQQ closed at 165.72. It closed 6.61 points lower. It also closed back under the midband on the daily chart. That level is 169.58 and should be resistance.
156.25 should be support on the downside. And if the QQQ drops under 162.50, I would expect a test of 156.25.
IWM:
Major level: 162.50
Minor level: 160.94
Minor level: 157.81
Major level: 156.25
Minor level: 154.69
Minor level: 151.56
Major level: 150.00
Minor level: 148.44 **
Minor level: 145.31
Major level: 143.75
The IWM closed at 147.52. It was down 6.56 on the day. This was a drop of 4.26%.
With a drop under the 148.44 level, this now suggests that if the IWM closes under that level today, it should drop to 143.75.
145.31 is a minor support level. If the IWM breaks under this level, expect it to continue lower.
TLT:
Major level: 118.75
Minor level: 118.36
Minor level: 117.58 **
Major level: 117.19
Minor level: 116.80
Minor level: 116.02
Major level: 115.63
Minor level: 115.24
Minor level: 114.45
Major level: 114.06
Minor level: 113.67
The TLT closed at 117.82. If the TLT can clear the 118.75 level, look for it to continue higher.
It is also right at the midband on the daily chart which is 117.84. It will have to get above the midband to move higher. Assuming it does, it would then become support.
Minor support is in the 117.19 area
GLD:
Major level: 118.75
Minor level: 117.97
Minor level: 116.41
Major level: 115.63
Minor level: 114.85 **
Minor level: 113.28
Major level: 112.50 <
Minor level: 111.72
Minor level: 110.16
Major level: 109.38
The GLD closed at 117.12. The next minor level is 117.97. Two closes above 117.97 and the GLD should test 118.75.
On the downside, 115.63 is minor support.
XLE:
Minor level: 72.66
Major level: 71.88
Minor level: 71.10
Minor level: 69.53
Major level: 68.75
Minor level: 67.97
Minor level: 66.41 **
Major level: 65.63 <
Minor level: 64.85 **
Minor level: 63.28
Major level: 62.50
The XLE closed at 65.64. A break under the major 65.63 level and the XLE should head lower. At that point, a test of 62.50 would be the likely scenario.
Also, if the XLE closes under 64.85, look for the XLE to continue lower.
FXY:
Major level: 85.94
Minor level: 85.75
Minor level: 85.36
Major level: 85.16
Minor level: 84.97
Minor level: 84.58 **
Major level: 84.38 <
Minor level: 84.18
Minor level: 83.79
Major level: 83.59
The FXY closed at 84.68. Resistance is at 84.77. So, if the FXY can clear this level, it should continue higher.
84.38 should now be support.
AAPL:
Major level: 193.75
Minor level: 192.19
Minor level: 189.06
Major level: 187.50
Minor level: 185.94
Minor level: 182.81
Major level: 181.25
Minor level: 179.69
Minor level: 176.56
Major level: 175.00
Minor level: 173.44
Minor level: 170.31
Major level: 168.75 <
Apple closed at 176.69. It was down 8.13 on the day.
Apple should open about 5 lower today. Expect an open around 171.
This would suggest that 173.44 would offer resistance on a bounce. I expect a drop to 168.75.
WATCH LIST:
Bullish Stocks: BIIB, GWW, ANTM, DPZ, BDX, CI, AMGN, MCD, CBRL, CLX, WDAY, ADP, JNJ, ADSK, UHS, VRSK, ESRX, UAL
Bearish Stocks: NOC, LLL, UTX, DGX, BG, PZZA, SLB, GIS, SIMO, EBIX
Be sure to check earnings release dates.
