Small-Caps Tap Bear Market Territory
8:00am (EST)
The stock market showed strength on Friday despite disappointing economic news as traders continued to nibble at oversold levels while hoping a near-term bottom starts to form. Specifically, consumer sentiment sank to 57.9 versus forecasts for a reading of 63.2.
The Nasdaq closed at 17,754 (+2.6%) after making a trip to 17,773. Near-term resistance at 17,750 was cleared and held. Key support is at 17,500.
The S&P 500 tagged a high of 5,645 before settling at 5,638 (+2.1%). Key resistance at 5,650 was challenged and held. Crucial support is at 5,550.
The Dow ended at 41,488 (+1.7%) with the high hitting 41,528. Resistance at 41,500 was topped but held. Near-term support is at 40,500.
Earnings and Economic News
Before the open: Protalix BioTherapeutics (PLX), Townsquare Media (TSW), 360 Finance (QFIN)
After the close: FibroGen (FGEN), High Tide (HITI, Getty Images (GETY), RF Industries (RF)
Economic News
Empire State Manufacturing Survey – 8:30am
Retail Sales – 8:30am
Business Inventories -10:00am
Home Builder Confidence Index – 10:00am
Technical Outlook and Market Thoughts
The charts are now showing well established downtrend channels with the major indexes on four-week losing streaks. The lower lows last Thursday stretched near-term and backup support levels that came into focus on Monday.
Friday’s positive session was a start for the bulls as volatility also hit lower lows to close out the week. Remember, higher volatility usually means the market is pulling back while lower volatility signals calmness and a higher moving market.
Of course, picking market bottoms and tops is never an easy task. In fact, the slick talking pros will tell you it is impossible to predict but that is not true if you do the homework. They simply don’t do the research and why we do.
With that said, let’s start with the Volatility Index (VIX) as it held 30 throughout last week with Monday and Tuesday’s peaks at 29.56 and 29.57. The close below 24 on Friday was bullish for the market but there needs to be follow thru this week and a push towards 20.
Now that 30 has held, it is even more likely going forward that a move above this level would confirm a blood-in-the-streets moment down the road for the market. This could come from tariff or tax reform troubles and other world changing events we will continue to monitor.
The Nasdaq bottomed at 17,238 on Tuesday and 17,239 on Thursday and held 17,000. This represented a 15% plunge from its December 16th all-time high at 20,204. Key support at 17,500 was stretched throughout the week but was recovered on Friday. A close below 17,000 could lead to selling pressure down to 16,750-16,200 with the latter representing bear-market territory (-20%) for the index.
Lowered resistance is at 17,750-18,000. Closes back above the latter would indicate a possible retest towards 18,500 and the 200-day moving average.
The S&P hit a 10% selloff from the February 19th record high at 6,147 on Tuesday’s dip to 5,528 and Thursday’s lower low at 5,504. Key support from mid-September at 5,500 held. Multiple closes below this level would imply a further slide to 5,400-5,200 with the latter would representing a 15% spanking.
Lowered resistance is at 5,700-5,750 and the 200-day moving average. Continued closes above 5,850 would be a more bullish signal for a v-shape recovery.
The Dow tapped a low of 40,661 on Thursday which represented a 10% drop from the all-time high of 45,073 from November 4th. The 45,000 level also represents the double-top breakdown that started in mid-February. There is wiggle room down to 40,000 with continued closes below this level getting 39,250-38,500 back in the picture. The August 5th low tapped 38,499.
Key and lowered resistance is at 42,000 and the 200-day moving average followed by 42,500. A pop above the latter might confirm a v-shape recovery.
The Russell 2000 briefly fell into bear market territory on Thursday’s intraday fade to 1,894 while closing below 2,000. Multiple closes below this level gets 1,950-1,900 in focus with the January 17th and 18th (2024) lows at 1,898 and 1,901, respectively. The latter would represent a 23% plunge off the all-time peak at 2,466 from last November.
Lowered resistance is 2,050-2,075. Closes above 2,135 would be a more bullish signal of a near-term bottom but additional hurdles would then remain at 2,000-2,025 and the 200-day and 50-day moving averages. A death-cross remains in play but could flatten out on a continued rebound.
We talked about a near-term market bottom starting to form last week and into this week if Friday was a higher close and the VIX settled below 24. It’s also no coincidence, dip buying (or the algorithms) came into play with the Dow and S&P down 10%, the Nasdaq falling 15% (in between correction and bear territory) and the Russell tanking 20%.
We mentioned last Monday that up Friday’s and Monday’s can suggest money is moving into or staying in the market. The last three Friday’s have been positive and the last two Monday’s have been negative. A reversal of this recent trend would be a bullish start to the week.