Market Bounces Off Key Support Levels
8:00am (EST)
Commentary
The market rebounded off the morning lows and key support levels after better-than-expected economic news. Specifically, the consumer price index rose 2.5% in August, down from 2.9% in July and is the lowest print since February 2021.
The Nasdaq closed at 17,395 (+2.2%) with the late day high at 17,420. Lower resistance at 17,250-17,400 was cleared and held. A close above the latter would imply upside to 17,500-17,650 and the 50-day moving average. Key support is at 16,750.
The S&P 500 reached a high of 5,560 while settling at 5,554 (+1.1%). Mid-August and lower resistance at 5,550-5,600 was recovered. Continued closes above the latter would indicate strength to 5,650-5,700 with July’s all-time high at 5,669. Key support is at 5,400.
The Dow ended at 40,861 (+0.3%) after trading up to 40,903. Lower resistance at 40,750-41,000 was cleared and held. A close above the latter would signal strength towards 41,250-41,500 with the recent all-time peak at 41,585. Key support is at 40,000.
Volatility Index
The Volatility Index (VIX) traded to a low of 17.55 with key support at 17.50 and the 50-day moving average holding. Continued closes below these levels would be bullish for the market. Resistance is at 20-22.
Thursday’s earnings announcements:
Before the open: Caleres (CAL), Kroger (KR), Lovesac (LOVE), Signet Jewelers (SIG)
After the close: Adobe (ADBE), Farmer Brothers (FARM), RH (RH)
Economic news:
Initial Jobless Claims – 8:30am
Producer Price Index – 8:30am
Federal Budget Balance – 2:00pm
Market Thoughts
We mentioned this month’s Fed meeting and possible rate cut could add some extra volatility to the market and yesterday’s intraday reversal was a prime example. However, there needs to be additional follow thru by the bulls on Thursday, and on Friday, to keep enough momentum towards printing fresh all-time highs.
It was clear as day buyers stepped in at key support levels to try and keep this market propped up into next week’s update. Yesterday’s lows on the major indexes were at: Nasdaq 16,787; S&P 5,406; and Dow 39,993. Key support levels we mentioned earlier are at: Nasdaq 16,750; S&P 5,400; and Dow 40,000.
Since we like to keep things simple, it is obvious a close below these key support levels will likely lead to a retest towards the August 5th lows. It is important to keep in mind these are also backup support levels from last Tuesday’s selloff.
The crucial support levels coming into the month were at: Nasdaq 17,500 and S&P 5,600. They are current and key resistance. If the two levels are cleared and held into the weekend, it would be a renewed bullish development for both indexes.
The Dow had easily been holding key support at 40,000 before yesterday’s action as the blue-chips were hit the least during last week’s mini selloff. In any event, continued closes above 41,000-41,250 keeps a trip towards all-time highs on the map.
As for the small-caps, the Russell held key support at 2,075 for the second-straight day. We mentioned this area represents 10% correction territory from the 52-week peak of 2,299 set on July 31st. Buyers (or the machines) bought this dip as well with the low at 2,058.
The small-caps did clear and hold 2,100 by Wednesday’s close but face additional hurdles at 2,135 and the 50-day moving average (at 2,145). Continued closes above 2,175 is needed to reverse the current bearishness in the chart.
And not to be outdone, the VIX battling 17.50 and key support was also a bullish signal. However, this can’t be trusted until there are multiple closes below 15. There were back-to-back closes below this level on Friday and Monday in mid-August at 14.80 and 14.65, respectively. A drop below 14.50 intraday this week could be the biggest clue a close below 15 is coming. Another pop above 20 bears caution.