July 26th Recap: Technical Damage on Record Volume

OK, you folks know how this goes:

That last item has me concerned for people’s financial well being once again, just like on June 7th. That day I got a lot of similar search hits and I expressed my concern about people chasing the market down. Sure enough the market turned on a dime and brought pain to the late-coming bears. I’m not saying that we can’t go lower here , just that the risk/reward in the short term is better to the upside. Just like I wouldn’t be rushing to buy after the fifth day of a rally I certainly won’t initiate shorts with the S&P down 4.5% in 5 days. On to the charts…

Some may have thought I was crazy last week when I was talking about the indices moving toward the bottom of their their channels. Well, here we are — the Nasdaq actually broke under its channel today. Note that it’s also back under it’s June highs. Bulls have to be a little concerned about what’s now a failed breakout, the break of the 50-day moving average and the March uptrend.

The Nasdaq-100 / QQQQ was notably stronger than the rest of the market today. The Qs actually went green early in the day. With names like RIMM, AMZN (disclosure: I’m long AAPL in my long term account) and AAPL in that index it’s no wonder that it’s showing relative strength. The question is can it hold firm or will the rest of the market drag it down. If things get really bad and, say, some hedge funds start blowing up everything will get sold.

The S&P clawed its way back in the last hour to close just shy of the June intraday low. I still consider it range-bound as long as it’s above 1480.

The Dow (which I ignore) is also approaching the June lows.

The Russell 2000 gave up the fiddy last week and the 200-day moving average today.

And another look at the financials. Here’s the Broker/Dealer Index ($XBD):

and the Banking Index ($BKX):

I’ll post some individual stocks over the weekend. Be careful out there!

Trend Table

A few downgrades today. I almost hate to flip the Russell’s long-term trend to to down but it is what it is.

Trend Nasdaq S&P 500 Russell 2000
Primary Up Up Down(-)
Intermediate Lat(-) Down Down
Short-term Down Down Down

(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend

*** I’m simply using the indices’ relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.

Comments

  1. Posted by Paul Peachin on July 26, 2007 at 10:23 pm

    Obviously you have taken a vacation from your vacation – exciting times for sure – volatility brings the veins to the surface – it’s a way to cool down the blood.

    Wonderful post, as always – paul

  2. Posted by Dr. Duru on July 26, 2007 at 11:53 pm

    It’s also good to point out that interest rates have taken a dive and created another false break-out from the decades long downtrend. Given the panic in the streets, I daresay rates will not break that like again for a while…unless GDP surprises big to the upside tomorrow!

  3. Posted by Dave on July 27, 2007 at 7:03 am

    Perhaps you could come up with a contrarian indicator based on the bearish phrases that people use to get to your blog. :d

  4. Posted by johndoe on July 27, 2007 at 5:15 pm

    T2108 — Given that the SPX hasn’t had a 10% correction in about 4 years, I wouldn’t be surprised to see that figure go down to below 10%. This happened in 1987, 1990, 1994, 1998, 2001 and 2002. During the crash of 1998, by the way, the figure went to 1.5%. Whether we see that 10% figure in the next few weeks or the next couple of months, I’ve no idea at the moment.

  5. Posted by Doug on July 27, 2007 at 6:10 pm

    Just found your site. Good work. I’ll bookmark it.

  6. Posted by Bryan on July 27, 2007 at 7:31 pm

    Looks like $SPX will test its 200-day MA, which it hasn’t closed below since almost exactly one year ago. The “Shanghai Surprise” back in Feb/Mar 07 tested the 200-day and even pierced it intraday marking the March low. If it breaks through the 200-day here with the “Subprime Surprise” there looks to be intermediate support at 1440 and 1410, and then the March low at 1365.

    The recent declines have brought the $SPX back within the range of a rising wedge I see it as being in since early 2005. It’s been in the upper half of that wedge since about Sept 06. A trip back to the lower end of that wedge would call for the S&P falling to about 1300-1325.

    There certainly doesn’t look like a ton of positive news coming out way unless the Fed cuts rates. I would have to think that puts even further downward pressure on the market.

  7. Posted by Gary on July 27, 2007 at 7:42 pm

    It’s all really amazing stuff–as always your insight is very helpful. Haven’t we been hearing all along that this was an institutional rally all along? If you go back, on slow days (esp half days before holidays) everything would creep back up making new highs on low volume–poor bears had to cover. Not a whole lot of positive news out there and I agree not a time to short unless you were short from recent days. Lot of technical damage to individual stocks.

  8. Posted by Mike on July 27, 2007 at 10:55 pm

    Hey Mike,

    Do you know of any good indicators or techniques for spotting direction changes in the market on an intraday level? Right now i have been using the ADX, but it’s hard to distinguish minor bounce from a real bounce in the market. as well as a real drop and a minor drop. This market is killing me =\

    keep up the good work by the way. love your blog

  9. Posted by Paul Peachin on July 28, 2007 at 10:17 am

    In answer to mike and a possible question:

    Brian uses a VWAP (volume weighted average price)
    a line similar to the 5SMA not like, it but similar – when I called Schwab (StreetSmart Pro) They don’t have it – StreetSmart Pro is written by Cybertrader – So TraderMike – do you have a VWAP in Cybertrader –

    For the Mike writing this question – It appears that a VWAP would be a nice “study” when the market is volatile.
    I called Schwab – they said they didn’t have it
    but I know TraderMike that you have clout – If you feel we could use it maybe you could press them.

    paul

  10. Posted by Jo on July 28, 2007 at 10:18 am

    Indicators are well and good but I think their usefulness may be diluted with Plunge Protection Team tinkering. Is there a way to properly factor their impact into the equation?

  11. Posted by guy on July 28, 2007 at 1:18 pm

    Happy Birthday Mike!

  12. Posted by Michael on July 30, 2007 at 9:22 am

    Thanks Guy.

Trackbacks

  1. […] big drop in the overall markets today.  (Like Howard, I love reading TraderMike’s analysis after a day like this.)  Just the opposite of the other day, there were a ton of stocks that […]

  2. […] of the clearest, easy to understand simplified perspectives on Thursday’s decline at his post Technical Damage on Record Volume. Especially, check out his point-by-point list of factors currently […]

  3. […] Trader Mike urges caution… Don’t chase the market down at this point.  Initiating shorts here involves much risk. […]