It was a truly wild week for the US equity market, with net weekly declines ranging from -6.8% (Nasdaq comp'), -5.8% (Dow, SP'500), to -4.6% (R2K). Near term outlook is for a bounce of 3-4%, before sustained and increasingly severe downside to the 1900/1800 zone.
Lets take our regular look at six of the US indexes
With the sp' unable to hold the 200dma (2077), there was a severe net weekly fall of -5.8%, having swung from a Tuesday high of 2103 to settle at the Friday close @ 1970. Most amazing was that as of Wed' afternoon the sp' was trading at 2096, and effectively fell 126pts across 15 trading hours.
The sp'500 has so far been unable to find a floor, having taken out a number of key lows, along with the psy' threshold of 2000. Underlying MACD (blue bar histogram) cycle has ticked massively lower, and is at levels not seen since last Oct'.
In terms of a bounce, the weekly 10MA will be resistance in the 2070s across the next week or two... with an initial resistance zone of 2040/50. On no reasonable outlook does it look like the sp' can sustainably trade back above 2080 for some months.
*re: near term outlook, see summary for a few of the key scenarios.
The tech' was the weakest sector/index this week, falling -6.8% @ 4706, the lowest level since February. Next support is around 4650. Regardless of any near term bounce, the Nasdaq comp' looks set to test the Oct' low in the 4100/4000 zone.
The mighty Dow saw a net weekly fall of a very severe -1017pts (5.8%) this week. With the loss of the 17k threshold, next support is not until 16k... which is where the lower monthly bollinger is lurking. The Oct' low of 15855 is now within range.
In terms of a bounce within the next 1-2 weeks, there will be very natural resistance at what used to be support at 17000. Sustained price action above the rapidly falling 10MA (next week @ 17500) looks out of range for some months.
The master index fell -5.4% to 10195. Next support is the psy' level of 10k, but equally viable... the Oct' low of 9886. Things really get hyper-bearish on any sustained trading <9800.
The second market leader fared better than all other indexes this week, settling lower by a 'mere' -4.6% @ 1156. Next key support is the 1100 threshold. If that fails... then the Oct' low of 1040. Despite increasingly bearish price action, sustained trading under the giant 1000 threshold looks extremely difficult in the remainder of the year.
The 'old leader' fell a severe -5.4%, settling the week at 7872. Next support is the Oct' low of 7700. From there, a bounce to 8000 looks very viable.. before broader downside to 7000 by early October.
Without question, the wildest trading week since August 2011. Not only have the bears continued to break new lows, but the rate of decline has greatly accelerated, with clear technical breaks on all indexes. A fair number of the US indexes are now within close range of the Oct' 2014 low.
Regardless of any bounce across the next week or two, further declines - perhaps at an even more accelerated rate, look due in September.
What about next week?
Near term outlook - five of the key scenarios
1. China cut rates, with other PBOC stock-buying intervention. China market soars.. and drags the US/Europe higher at the Monday open.. and that continues until at least Wed/Thursday.
2. Despite China Govt/PBOC intervention, the market still opens lower.
3. China/PBOC do nothing.. and the Shanghai comp' drops <3500... with US indexes resuming collapse mode.
4. China/PBOC do nothing... but the Shanghai comp' still rallies.
5. Crashy Monday (regardless of China) - A 7% Monday drop would be around 140pts... and would bring the sp'500 to around the Oct'2014 low of 1820.
My best guess... scenario'1, of which I'd give a probability of 60/70%
I'd give a probability on scenario 5 of 5%. It is highly unlikely, but the setup is there.. and momentum is unquestionably increasingly bearish across all world equity markets.
Primary... to wait for a bounce to sp'2040/50s... 2070s look increasingly a stretch... and go all out short.. at least down to sp'1900 in Sept. Short targets: AAPL/DIS/INTC.. index ETFs - SPY, long-VIX.
Secondary.. if Monday/early week collapse.... I would consider going long from the low sp'1800s. Yes, I realise the latter target looks out of range in the near term... but it is possible. Hell, the NYSE circuit breakers don't initially kick in until a -7% index drop.
There isn't much scheduled next week.
T - Case Shiller HPI, New home sales, consumer con'
W - Durable Goods Orders, PMI service sector
T - weekly jobs, GDP (first rev'), pending home sales
F - pers' income/outlays, consumer sent'
There will be a key meeting of economic/financial leaders at Jackson Hole next Thurs/Friday, but like the past two years, there will be no appearance by the Fed chair.
Sunday night futures... and China
As usual, the Sunday night US futures market will open at 6pm EST. How that will open.. difficult to say, it could easily be swayed strongly higher if the PBOC act on Sunday.
More importantly... regardless of whether the PBOC do anything, the China market will open at 9.30pm EST. If the Shanghai comp' loses 3500 - a threshold many agree as critical, and if the PBOC don't intervene, then overnight/Monday could effectively see a mini market crash wave sweep through most world equity markets.
*I will very likely post updates across Sunday evening from 6pm EST onward.
As ever... its always good to hear from some of you.. so say hello if you like.
Have a good weekend.