Market technician Dave Chojnacki of Street One Financial recaps Friday’s wild market action, which eventually led to major gains for equities, and updates the key technical levels to watch as volatility remains at elevated levels.
After a major loss on Thursday, equities opened to the upside on Friday. It didn’t take long for the volatility to show up, however, as the major averages tumbled deep into the red. Rising interest rates continue to keep pressure on equities, as the 10-year remains near 2.85%.
The major indices tested some key technical levels before bouncing near the close and finishing to the upside. Volatility remains extremely high, with the VIX near 30.
At the close, the Dow Jones Industrial Average (DJIA) was up 1.3%, the S&P 500 (SPX) added 1.5%, and the Nasdaq 100 (NDX) gained 1.7%. Breadth was positive, 1.5 to 1, on heavy volume.
RSI’s rose in the session, with the major indices in the mid to upper 30’s. MACD’s are below signal for all three major indices. ROC(10)’s advanced in the session, but remain in negative territory.
For the week, the DJIA was down 5.2%, and the NDX and the SPX lost 5.1%. The CBOE Volatility Index fell 13% on Friday to 29.06. For the week it was up 67% however.
Earnings reports continue this week, and we also get a look at CPI and Retail sales. Eyes will continue to watch interest rates as perhaps the best indicator for equities moving forward.
Long term, the upside bias is being challenged. The major averages are testing key long term technical indicators. The SPX tested its 200D-SMA (2539) on Friday, trading as low as 2532. It did close comfortably above that level, however.
The DJIA and NDX traded near their 150D-SMA’s of 23344 and 6210, respectively. We need to watch these 1-year trendlines: DJIA-23350, SPX-2575, NDX-6300.
Short term, the bias has reversed to the downside. All three major indices are below their 50D-SMA’s. They are also below their 50% retracement levels of: DJIA-24206, SPX-2665, NDX-6477. Near term, bias remains to the downside. Near term technicals are broken and the major indices remain with their MACD below signal.
Europe is higher in early trade Monday, and U.S. futures are pointing significantly higher in the premarket. There are no major economic reports on tap today.
The SPDR Dow Jones Industrial Average (SI:SPDR) rose $3.45 (+1.43%) in premarket trading Monday. Year-to-date, DIA has declined -2.16%, versus a -2.01% 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 #1 of 79 ETFs in the Large Cap Value ETFs category.