Last week went according to plan. We started slow, volatility gained momentum as the week wore on and we retested highs set earlier in the year. While we did get choppy action in the middle of the week, the Fed announcement period passed without the usual flair. We did hit price highs late in the week as the S&P 500 took out the May high. Before looking ahead, taking a step back should give us some clues going forward.
Last week I mentioned we should look to the SOX first, which did not confirm highs elsewhere last week. While the NDX and Nasdaq barely exceeded my price targets (NDX: 1650, Nasdaq: 2250), the SOX still fell nearly 30 points shy of 492, the 61% retracement level. This is the same kind of action we saw in the spring as the Dow/S&P 500 continued making higher highs, while the NDX/SOX topped in January.
The result was bearish reversal candles on a daily chart. We put in bearish engulfing bars on the NDX and Nasdaq, while we came very close to a tweezers in the Dow and S&P 500. There was some follow through on Friday. We also put in those bearish reversal bars on the Lucas +/-1, 47-day window off the July 18 low. This window also clustered with the autumnal equinox, which is a high-probability reversal point. We may have the reversal in place, but it is not confirmed yet. The new leg down has bearish characteristics, as it has more than filled the gap from NDX 1621-35 and NASDAQ 2222-2242 from Tuesday to Wednesday. I also look at how the intraday cycles develop and the 15-minute chart is showing bearish qualities.
We closed the week trying to bounce, so we are starting with an attempt to follow through and get to another re test of the high. If all we can get is an intraday flat pattern and then take out the low, we could have a big down week. We are in a seasonal down cycle here and any large black candle on decent volume can even lead to the kind of selling we saw in late May. While a continuation down is the higher probability at this time, another high still can't be ruled out. If we get close to the high, all we may get is a trading range this week. We are at a fork in the road right here, but the sellers are at the plate with men in scoring position. Questions or comments email Fibonacciman@aol.com.
