Well that was quite a week wasn’t it? Seems the plan i anticipated last week worked out pretty well. I actually traded in and out several times and made some decent dough and most of the profits have been rolled back into dividend stocks. I thought we may churn a bit more but the close on Friday was near the low foretold of further weakness to come. Sunday nights futures are currently showing some weakness so we’ll see how this plays out tomorrow.
First up, Josh Brown has posted an absolutely excellent article from Jeffrey Gundlach’s recent presentation. Highly recommend a read, it certainly makes one wonder about the next phase.
Ok, so here are some charts showing the impact from last week.
As you can see the SPY ETF got clipped through the 50sma on friday which isn’t a good sign so at the very least expect a lot of chop and potential downside just on this simple test. If, for whatever reason they retake that level and hold then we’ll revise the hypothesis. The one caveat is the market is getting near oversold conditions again. I’ll explain the impact of what i think may happen from the futures charts.
This is a weekly chart of the /ES EMini June Contract. The trend line is probably the one that most pundits will be watching. The grey boxes are the 3 gaps left near by on the downside, i think 2 of these will go in short order. The first one is located at 1793 so my expectation is that the market is going to churn around this 1800 level, possibly probe down, fight back to 1820 then it’s a dice throw, that could be it or they go for some capitulation and wash people out down to the 1766-1772. This will also coincide with the often watched 200sma. I’m basically looking for a higher low from the last time we got down to those levels ( 1732 ). No need to chase right now, there could be some great bargains here but all bets are off if they wash through the 1730 levels, if that happens, something else is going on in my eyes.
Here is a daily of the /NQ Nasdaq June emini chart. The dashed yellow lines are representing the support zone i am anticipating the /NQ to test. There isn’t much left to go, another 60 points or so. Given that the nasdaq has come off the hardest and furthest recently, i’m expecting to see it hold ground first, this maybe a tell that the market is in a bottoming process but we’ll not know until after the event. I’ll be watching the usual suspects like AMZN, TSLA etc to see how they react.
At the end of next week, i want to see the tape have a weekly close that shows buyers stepping in somewhere, if we close again near the lows then rinse and repeat until we see otherwise.
I actually think there are some great bargains out there and i’m starting to look at the chinese ADR’s of all things aswell as some stuff in Australia ( no withholding tax on dividends on some of these )…
Earning reports begin to ratchet up next week, i’ll be keeping an eye on the sectors that get smoked or hold their ground during this correction.
Also a long weekend is coming, the market tends to stabilize into a long weekend and the volume dries up as everyone leaves for wherever.
Image courtesy of digitalart / FreeDigitalPhotos.net