Market technician Dave Chojnacki of Street One Financial examines Monday’s massive pullback in the U.S. averages and updates the important technical indicators to focus on, as the big market plunge of 2018 continues.
We had many technical signals recently giving warning of a near term pullback. Fundamentally, we have interest rates moving higher and wages are increasing (which may portend inflation).
Last week we noted the iShares 20+ Year Treasury Bond (NASDAQ:TLT) (iShare Treasury Bond ETF) breaking a key technical level on interest rate fears. The market had been extremely overbought, so a sell-off was expected. No one expected the rapid move in the last 2 days, however, with the major indices seeing significant losses.
The major averages ended near their lows of the session on Monday, on very heavy volume. At the close, the Dow Jones Industrial Average (DJIA) was down 4.6%, the S&P 500 (SPX) fell 4.1%, and the Nasdaq 100 (NDX) gave up 3.9%. Breadth was decidedly negative, 9 to 1, on heavy volume. ROC(10)’s declined across the board and remained in negative territory.
RSI’s have rapidly moved from extremely overbought to an oversold condition in just a few days. The DJIA ended the day at 29.5, the SPX at 29.4, and the NDX at 34.7. All three major averages continue with their MACD below signal. The ARMS index ended the day at 3.52, a very bearish reading.
Not much positive one could say about yesterday’s trading. All three major indices blew through their line of support at their 50D-SMA: DJIA-25016, SPX-2716, NDX-6580. All three also closed near their 20WK moving average: DJIA -24251, NDX-6416, SPX-2653.
We look at Fibonacci retracement levels for where we may see the next lines of support. We look at the last leg up, which started in the end of summer to the recent highs. All 3 major indices moved below their 38% retracement levels, the next level of support being 50%: DJIA-24206, SPX- 2665, NDX-6477.
The VIX spiked a whopping 115.60% to 37.32. We are now at extreme volatility levels, even with the VIX well below historical highs.
Near term support for the NDX is at 6495 and 6477. Near term resistance is at 6578 and 6600. Near term support for the SPX is at 2625 and 2600. Near term resistance is at 2665 and 2715.
Europe is trading significantly lower in early trade, and U.S. futures are significantly lower once again in the premarket. Major economic reports on tap today include International Trade at 8:30am and JOLTS at 10:00am.
The SPDR Dow Jones Industrial Average (SI:SPDR) ETF fell $5.09 (-2.09%) in premarket trading Tuesday. Year-to-date, DIA has declined -1.66%, versus a -1.10% rise in the benchmark S&P 500 index during the same period.
DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #3 of 79 ETFs in the Large Cap Value ETFs category.