Correction has started!
DOW Friday Closing Price - 43588SPX Friday Closing Price - 6238
NASDAQ Friday Closing Price - 22763
RUT Friday Closing Price - 2166
This last week turned out to be likely indicative for the short term. On the plus side, earnings were better than expected (in some cases much better than expected), GDP was also better than expected, and the manufacturing number followed that pattern. Nonetheless, on the opposite side, two negative things occurred, with the first being Friday's announcement that job growth shrank more than expected and secondly Trump announcing that his tariffs were now in place and not to be changed unless a deal with each country occurred.
The SPX and NASDAQ both made new all-time intraweek highs on Thursday and then generated a key negative reversal week on Friday, having closed red and below the previous week's low (in the DOW, an intraweek drop of 1325 points from the high made on Thursday, in the SPX at drop of 215 points, in the NAZ a drop of 884 points and in the RUT, a drop of 92 points) . The DOW and the RUT failed to go above the previous week's highs and then proceeded to break short-term pivotal intraweek supports (in the DOW at 43758 and in the RUT at 2184). All of this action strongly suggests that the index market is now in a corrective phase for the short-term (likely 1-2 months at least).
Adding to all of this, August is a seasonal negative month that usually does not turn around until the latter part of September or the first part of October. Last but not least, the index market has been in a strongly overbought condition for a month or two, meaning that with no possibly catalytic reports due out until the first week of September, everything points to lower prices the next few weeks.
In looking at the charts and in searching for levels of support where computers and algorithms will kick in with automatic buying interest, the DOW chart suggests that a potential and likely objective is the 41647 to 41844 level. In the SPX and the NASDAQ, the previous all-time weekly closing highs at 6114 and at 22114 are the likely objectives. In the RUT the 2080-2100 level is the objective. Mind you, these are chart objectives that are likely to be reached because of the action and fundamental news that came out this week. Nonetheless, this is still a market that is uncertain fundamentally as to what the future brings (due to the Tariffs and Trump decisions), meaning that these objectives are dependable but not to the degree they would "normally" be. More or less continues to be possible.
To the upside, all indexes generated a gap down on Friday on the daily chart, meaning those gaps are magnets, either to be closed or simply tested. Based on the news that did come out, probabilities do not favor those gaps being closed at "this time" (more likely to be closed in September or October, if closed at all). Those gaps are at DOW 44049, SPX at 6327, NASDAQ at 23176 and RUT at 2207.
There is one thing to watch for this week and that is if another gap down occurs on Monday (or at any time later in the week). Friday's low in the DOW is at 43340, in the SPX it is at 6212, in the NASDAQ it is at 22673, and in the RUT it is at 2143. A gap down on Monday would generate a breakaway/runaway gap formation that would give additional and strong fuel to the bears (if the gaps are confirmed), meaning that reaching the downside objectives (stated above) would become highly probable. It also needs to be mentioned that in the SPX and the NAZ there is a close by intraweek support that if broken would automatically generate more selling. Those two levels are at 6201 and at 22587.
The charts, the news and the short-term outlook all point to lower prices, with the only question being the time frame and the way those lower objectives will be reached.
