Here below is the chart evaluation of the index market that I did today. This evaluation is part of the newsletter that I send to my paying subscribers every week. I am supplying you this information "free of charge" given the unique nature of what is happening.
Negative fundamental news causes the indexes to drop strongly. Correction started?
DOW Friday Closing Price - 45479
SPX Friday Closing Price - 6562
NASDAQ Friday Closing Price - 24221
RUT Friday Closing Price - 2476
The
SPX, the
NASDAQ, and the
RUT made new all-time intraweek highs but then generated a "key" reversal week, having closed out the week below the previous week's lows. Every index dropped around 3% on Friday, on the news that China was imposing quota restrictions on "rare earth" minerals. This statement was the followed with Trump saying that starting next month, he would be imposing a 100% tariff on Chinese imports. This is now becoming a trade war between these two powers, and such a war is a negative to the economy of both nations. If these actions remain in place as stated, the probability of a correction having started will be high.
Chart-wise, all indexes generated a sell signal on both the daily and weekly closing charts and closed on the lows of the week suggesting further downside below last week's lows will be seen this week. In the
DOW that is below 45470, in the
SPX that is below 6550, in the
NASDAQ that is below 24207, and in the
RUT that is below 2393.
It is important to note that the dichotomy between the
DOW and the
NASDAQ did not change as both indexes dropped 2.8% this week. For the past few years, the latter index would have dropped more than the former index, but that did not happen. In addition, and in listening to the guest analysts on Bloomberg TV, almost across the board they stated that this drop would be a buying opportunity and that a reversal to the upside could be seen as early as this week. At this time though, it is impossible to make any such determination, especially given that both of the actions taken this week by China and the U.S. will have some long-term negative implications if they remain as stated.
The key index this week will be the
DOW, given that the previous all-time daily and weekly closing highs will likely be tested this week. Those levels are at 44910 and 45014, which is 1% lower than Friday's close. In the
SPX and the
NASDAQ those levels are 7-8% lower than Friday's close and highly unlikely to be in play this week. If the
DOW does manage to give a confirmed daily close below 45014 and then on Friday, closes below 44910, a failure signal of consequence will be given, which in turn will generate automatic computer and algorithm selling. Such a scenario would then suggest that the other 2 indexes would drop down to "their" former all-time daily closing highs at 6144 in the
SPX and at 22175 in the
NASDAQ in the next few weeks, making this a true correction.
To the upside, the levels to watch for this week and on a confirmed daily closing basis, are as follows: In the
DOW at 46030, in the
SPX it is at 6615, in the
NASDAQ it is at 24397. Those were the levels that when broken on Friday, generated the sell signals. If those sell signals are negated this week (on a confirmed basis), some of the selling pressure will be ameliorated.
This situation as is being seen this year is unique, and as such, very difficult to evaluate with any degree of certainty. The fundamental outlook cannot be determined with any clarity, meaning that the charts will be the key to what the traders will do.
