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As I turned on CNBC this morning to see what the futures are doing overnight, I heard the announcer actually bring up the fact that the market may be shifting to a bear market.
The S & P 500 has now fallen 416 points in 7 days and now someone brings up the idea that the market may be shifting to a bear market?
I tend not to think in terms of bull or bear markets. These are terms the media uses. Me, I am a lot simpler than the media. I say the market is either going up or it is going down.
And clearly the market is going down.
The question is to measure where support should come in and why. And then I use various strategies to determine if the move is rational or irrational.
And this morning, I will address both issues.
As to where support should come in, the answer is rather simple.
The support level I have mentioned on a variety of occasions is the midband on the daily chart. After breaking through the midband and failing to break through the upper band, the support on a pullback should be the midband, which is now 3,007.
Yesterday, the S & P 500 not only sliced under it, but it managed to close under it.
The day closed out at 2,978.76 or about 28 points under the midband.
This to me is rather bearish because it now sets up a scenario where a run to the lower band could happen. Just so you know, the lower band on the daily chart is 2,590.
And at this point, the S & P is within 400 points of the lower band.
Could this happen?
Well, when you have daily ranges of 100 plus points, this could happen in less than a week.
The other fact about the lower band is this.
When the S & P began its rally back in December of 2019, it was under the lower band and never tested it. That is not the norm. So, perhaps this move is the test of the lower band. So, a drop to the lower band now would not shock me at all. In fact, I expect it.
Just so you know, the DOW is well under its midband. The midband is 26,990 and yesterday closed at 25,766.
The lower band is 24,083 and the DOW is now within 1,770 points of it. So, can the DOW drop to the lower band?
Well, considering that yesterday, it was down 1,200 points, it could be there in two days!
To round out this discussion, both the NASD Composite and the QQQ are still above their midbands.
But, recall that both these markets had traded above their upper bands. And the usual expectation is that price will retest the upper band. So, these markets should be the strongest when the markets find some footing.
As a point of reference, the midband for the QQQ is 194. And yesterday, the QQQ closed at 205.64 or about 11 points above it.
The question now is when should we see a bounce and at what price?
As I have mentioned before, I look for selling climaxes as an indication that the selling is getting exhausted.
And yesterday, we got the 3rd selling climax in this down run.
The print on Tuesday was changed to 10.01 and yesterday read 9.18.
This suggests to me that a bounce is not far off. And the S & P continues to trade well under its lower band on its 60 minute chart. That price is now 3,112 and the market closed yesterday at 2,978 or about 35 points under it.
The other level I am looking at is 2,925, which is the price level that represents a three-level move off the top, as measured with my resistance levels.
And the market is within 50 points of it. This would be a level I would consider nibbling long.
But, a three-level move tells us that this is not normal.
I have written on many occasions during this bull move that a two-level pullback is as far as a market should go in a bull market. And if you look at prior pullback, they never exceeded two levels.
A move to three levels would tell us to short the next rally. And the next rally would most likely go two levels.
So, here is what I am looking at.
Looking for the market to firm up around 2,925. Then a bounce up to the 3,240 area. And look to short the market around there.
Remember, with the buy programs in the markets, these counter moves should be sharp and make it seem like the selling is over.
Save this update and see how close to reality this prognostication becomes.
Remember though, these are rough areas of support and resistance.
The only other comment I have is this. This sell-off could ultimately trade as a crash pattern. In that scenario, the retracement would go to the 61.8% fib level on the down move. But, I don't want to confuse the comments I made today with that analysis. When the market does find footing, I will discuss what this means.
Resistance from yesterday's daily bar is around 3,020. And above that level is strong resistance at 3,037.
Pre open, the S & P is trading about 17 points lower.
BYND reported and is trading about $13.64 lower after reporting.
Here are the Key Levels for the Markets:
$VIX:
Major level: 28.13
Minor level: 27.35
Minor level: 25.78 **
Major level: 25.00 <
Minor level: 24.22
Minor level: 22.66
Major level: 21.88
Minor level: 21.10
Minor level: 19.53
Major level: 18.75
Minor level: 17.97
Minor level: 16.41
Major level: 15.63
The VIX closed up 11.60, spiking up 42% on the day as fears about the virus continue. The VIX closed out the day at 39.16.
The VIX is well above its upper band on the daily chart. That level is 22.98 and the VIX is about 16 points above it.
This shows you how irrational this move has become.
The level to watch at this point is 40.63. If the VIX can not clear this level, I would expect it to start pulling back.
The VIX will have to drop under the upper band on the 60 minute chart, which is 27.93 to have the market reverse and move higher.
S & P 500:
Major level: 3,427.40
Minor level: 3,398.35
Minor level: 3,320.25
Major level: 3,281.20
Minor level: 3,242.15
Minor level: 3,164.08
Major level: 3,125.00
Minor level: 3,085.95
Minor level: 3,007.85 **
Major level: 2,968.80 <
The S & P closed at 2,978.76. The S & P closed about 10 points above the major 2,968.80 level.
Watch to see if this level holds today. And watch the minor 3,007.85 level today to see if the S & P can reclaim it.
3,112 is the lower band on the 60 minute and this is also a level the market needs to reclaim to head higher.
QQQ:
Minor level: 219.56
Major level: 218.75
Minor level: 217.97
Minor level: 216.43
Major level: 215.65
Minor level: 214.87
Minor level: 213.30
Major level: 212.50
Minor level: 211.72
Minor level: 210.17
Major level: 209.39
Minor level: 208.61
Minor level: 207.04
Major level: 206.25 <
Minor level: 205.47
Minor level: 203.91
Major level: 203.13
The QQQ closed at 205.64. Watch the minor 205.47 level on the downside. The QQQ would need to close under this level to head down to 203.13.
The QQQ broke under its lower band on its 60 minute chart, which is 208. Watch to see if the QQQ can reclaim this level today.
214 should be resistance.
IWM:
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
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 149.06. The IWM continues to move under its midband, which is 155.49 and close under the major 150 level.
Watch the minor 148.44 level. Two closes under this level and the IWM should drop to 143.75.
139 is now the lower band on the daily chart.
The IWM is under its lower band on its 60 minute chart. The lower band is 155.70.
TLT:
Major level: 153.13
Minor level: 152.35
Minor level: 150.78 **
Major level: 150.00 <
Minor level: 149.22
Minor level: 147.66
Major level: 146.88
Minor level: 146.10
Minor level: 144.53
Major level: 143.75
Minor level: 142.97
Minor level: 141.41
Major level: 140.63
The TLT closed at 151.88. A close above 150.78 and the TLT should move up to 153.13.
The 150 area should offer technical support. Technical resistance should be at 153.
Continues to spike on market fears.
GLD:
Major level: 156.25
Minor level: 155.47
Minor level: 153.91**
Major level: 153.13
Minor level: 152.35
Minor level: 150.78
Major level: 150.00
Minor level: 149.22
Minor level: 147.67
Major level: 146.89
Minor level: 146.11
Minor level: 144.54
Major level: 143.75
The GLD closed at 154.00. The GLD managed to hold the minor 153.91 level. With the GDX breaking, I am expecting the GLD to follow suit.
155 is resistance on the upside. And minor support is 153. A break under 153 and the GLD should head lower.
Pulling back from its short term overbought condition.
XLE:
Major level: 56.25
Minor level: 55.47
Minor level: 53.90
Major level: 53.12
Minor level: 52.34
Minor level: 50.78
Major level: 50.00
Minor level: 49.22
Minor level: 47.65
Major level: 46.88
Minor level: 46.09 **
Minor level: 44.53
Major level: 43.75
Oil continues to go out of business. The XLE closed at 45.31, closing under the 46.87 level we were looking for.
A close today under 46.09 and the XLE should drop to 43.75.
Seriously oversold now, but to bounce it will need to reclaim 47.
AAPL:
Major level: 337.50
Minor level: 334.38
Minor level: 328.13
Major level: 325.00
Minor level: 321.88
Minor level: 315.63
Major level: 312.50
Minor level: 309.38
Minor level: 303.13
Major level: 300.00
Minor level: 296.88
Minor level: 290.63
Major level: 287.50 <
Minor level: 284.38
Apple closed at 273.52. Apple dropped 19.13 yesterday. Apple is still about $50 above its midband on the daily chart.
The lower band is 287.09 on the 60 minute chart and Apple is under it.
Pre open, Apple is trading about $12 lower.
WATCH LIST:
Bullish Stocks: CMG, TSLA, DPZ, MA, COST, NVDAm DXCM, LULU, VRTX, HD, V, CRM, STMP, DG, AXP, ROST, DGX
Bearish Stocks: VRSN, EEFT, W SPR, MNRO, XOM, LNG, NTAP, CREE, CSCO, CCL, R
