Having hit a new high of sp'2019 on Alibaba IPO day, US equities saw the weakest price action since late July. Net weekly changes ranged from -1.0% (Dow), -1.4% (sp'500), to -2.4% (R2K). Near term outlook is for further weakness into early October.
Lets take our regular look at six of the main US indexes
It is indeed pretty fascinating to consider that the sp'500 might have seen a key intermediate peak on the very day of the giant Alibaba IPO.
This week saw a brief break of the weekly 10MA, but bulls managed to hold a weekly close in the 1980s. Underlying MACD (blue bar histogram) cycle ticked lower. It is highly notable that by mid October the lower weekly bollinger will be around 1900... and that would indeed be 'best bear case' before the next significant up wave.
If the bulls can break much above 1995/2000 next week, the door will re-open to new highs, and right now, the target would be the 2030s. Considering the recent price action though, I do not think that likely.
The tech' slipped -1.5% this week, but remains very close to the highs. There is a pretty bearish aspect in that the MACD cycle is set to turn negative at the Monday open, and there is certainly a lot of downside potential. First key target for the equity bears should be 4300, which is a further 4.5% or so lower.
The mighty Dow was the strongest index this week, losing just -1.0%. MACD cycle is set to turn negative next week, with first downside target of around 16750, some 2% lower. If that fails to hold, then secondary target is the August low of 16300s.
The master index fell for the second week of four, having brushed rising support this Thursday. Underlying MACD cycle remains strongly negative, and the August low of 10500s looks well within range next week.
Not surprisingly, the R2K, having lagged the broader market since the late spring, continues to suffer the most, with a net weekly decline of -2.4%. The 1080s remain the critical threshold, and that is currently just 4% away. Any break <1080 will open up the giant 1000 threshold, with best 'doomer case' on a multi-month decline.. the low 900s.
The 'old leader' slipped -1.7% this week, with the MACD cycle turning negative. There is certainly a lot of downside potential, but first target remains the 7900/7800s.. where the lower weekly bollinger will be lurking in October.
So... we've swung from an Alibaba high of sp'2019, to a 'something new is happening' Thursday low of sp'1965. In the scheme of things, price action is still relatively minor, as reflected in a VIX that still struggles just to hold the mid teens.
For the chart technicians out there, I think what is most notable are the MACD cycles, with a fair few indexes set to turn negative at the start of next week. For the algo-bot market that we trade in, next week looks set for continued downside, rather than another attempt to break new highs.
Certainly, the price action on Thursday was something we've not seen since late July, although I'll be the first to admit that until the VIX breaks above the important 20 threshold, the equity bears should not let themselves get overly confident.
There is fair bit of data next week...
Mon - Pers' income/outlays, home sales
Tue - Case Schiller HPI, Chicago PMI, consumer conf'
Wed - ADP jobs, PMI & ISM manufacturing sector, construction spending
Thur - jobless claims, factory orders
Fri - Monthly jobs data, intl trade, PMI & ISM service sector
*there is QE next Monday of $2-2.5bn. It is notable that as of Wednesday Oct'1st, QE-pomo will be just $10bn.. with QE3 ending entirely as of Friday Oct'31st.
Best case for the 'doomer bears'
With the break of support @ sp'1979, there is actually some real justification to consider that the giant wave from Oct'2011 has possibly concluded. Certainly, the Alibaba IPO - with an sp'500 top of 2019, would kinda sync well together.
Right now, the following remains best bear case.
Without question, in order for there to be ANY chance of a much larger down wave in late Oct/Nov, the bears MUST break to the low 1900s in the current wave. The 1950/40s just would not be good enough. Within the next two trading weeks, bears need to hit the 1920/10s.. if not actually test the August low of 1904.
If by some miracle we do get to the low 1900s, then I'll have 'reasonable' confidence that 2019 was the intermediate'3 top... something that many have been seeking for over a year.
*I hold short across the weekend, and this is my first short-index trade since summer 2013.
back on Monday :)