Another one of those weeks that bulls would like to put behind them. Stocks (SPY) dropped an additional 2.14% today to close the week at $187.81. We are rapidly approaching August lows. A drop below them could spark a stampede out of stocks as investors panic at 52-week lows. $SPX has already made an intraday 52-week low on Friday. The index is somewhat oversold after a 10+% move from the December 29th highs. So far two attempts by the bulls to halt the slide fall flat, and bears are still in control.
CHART OF SPY
CHART OF $SPX
- Stocks are currently in a bear market. A bear market is characterized by a series of lower lows, lower highs and failed rallies.
- At this time $SPX is about 11% off the all-time highs, but it could easily correct by an additional 15-35%. This is based on the Fibonacci retracements from the 2009 lows to the recent all-time highs.
- The bottoming patterns during the previous bear markets showed up in the RAWMBI readings as “oversold”. Right now RAWMBI is not even close to being oversold.
CHART OF $NYA
A clear winner on the downside this week was RSX – the ETF tracking the stock market of mother Russia. Just on Friday it collapsed over 7% and hit a fresh set of 52-week lows.
CHART OF TLT
Even the short-term bonds are pushing higher. If you think about this for a moment, it is very counterintuitive. If the Fed is raising interest rates, shouldn’t bonds be worth less? The Market is sending a completely different message: we don’t care about rates; we just want to receive our principal back!
CHART OF BSV
CHART OF $USD
Gold is one such example: it hit multi-year lows just a few weeks back and since rebounded and then traded more or less sideways. It doesn’t change the fact that gold is currently very bearish. Maybe if $USD weakens somewhat gold could push higher to around $1140-$1160. Or maybe it just collapses from here. Either way: I am not looking to pick a bottom, but rather to wait for an overbought condition to manifest so I can short again.
GDX is back to the $13 magic level where it held support on numerous occasions in the past. It certainly looks vulnerable now and a break below $13 could easily shave off another 15-20% off its current price. An alternative scenario is another rebound attempt to, a now prominent resistance around $15, or possibly higher. In either case, I am only looking to short and not trying to pick a bottom.
CHART OF GDX
CHART OF $WTI
The Oil & Gas Equipment Services fund (XES) may also be approaching a limit of the measured move from the inverse cup and handle breakdown (see chart). Keep in mind that these measured moves are just rough estimates, but they could act as guideposts to lock in profits. If traders start covering their shorts in XES, a bear-market rally could easily materialize.
CHART OF NATGAS
That’s it for this week’s market recap,
Best Regards and have another great trading week!
Alexander Berger (www.MasterChartsTrading.com)