Stocks had an ugly start last week as in Sunday night trading the S&P futures opened down 31 points. By the close Monday the future were down over 40 points as the negotiations in Greece reached an impasse again. As we head into the long holiday weekend there is still no solution in sight as the focus is on Sunday’s referendum vote.
The Dow Industrials and S&P 500 lost about 1.20% on the week while the small cap Russell 2000 lost 2.46%. Global events short of war rarely change the major trend as prior selloffs over fears that Greece would leave the Euro have presented good buying opportunities. This is likely to eventually be the case in 2015.
For investors the continued deterioration in the technical outlook is a larger problem. The iShares Russell 2000 (IWM) closed below support at line b, which completed the weekly rising wedge formation (lines a and b).
As legendary technical analysts Edwards & Magee commented that it reflects “gradual petering out of investment interest.” Even though prices are advancing, “each new up wave is feebler than the last. Finally, demand fails entirely and the trend reverses. Thus, a Rising Wedge typifies a situation which is growing progressively weaker in the technical sense.”
Also last week IWM closed below its quarterly pivot for the first time since September 2015. Then the IWM dropped almost 9% in the next four weeks . The monthly pivot support for July is at $120.35 which is not far above the May low. On a close below $120 there is even stronger support in the $113.80-$115 area. The midpoint of this support is 7.4% below current levels .
The wedge has another potential downside target in the $110 area, line c. As I have been noting for a few weeks the Russell 2000 A/D line had been diverging from prices and has now closed below the May lows. There is initial resistance now in the $125-$126 area with stronger above $127.
The chart of the Spyder Trust (SPY) still shows a broad trading range with the July pivot support at $203.25. The March low at $202.50 is also an important level of support and if it is broken then a decline to the $200 area is more likely. The 38.2% Fibonacci support is at $199.95 which is 3.5% below Friday’s close. A drop to the 50% support at $196 would mean a decline of 5.4%.
The daily S&P 500 A/D line is still in a clear downtrend, line a, which was one of my Three Reasons To Stay Patient that I discussed last Tuesday. There is longer term A/D line support at line b, as the downtrend (line a) needs to be overcome before it can turn positive. The bullish sentiment according to AII did droop sharply last week and is now at just 22.6% while slightly over 35% bearish. These numbers are again moving in the right direction.
The A/D line for the Dow Industrials (not shown) also made new lows for the year on both the weekly as well as the daily basis. If the SPDR Dow Industrials (DIA) drops below the week’s low at $175.45 the monthly pivot support is now at $172.67. The declining 20 day EMA and first resistance is now at $178.56.
For the Powershares QQQ Trust (QQQ) the A/D line (not shown) also made a new low on Monday reaffirming the downtrend.. The weekly Nasdaq 100 A/D line is below its WMA but is still above the January lows. There is initial resistance at $108.45 and the 20 day EMA. There is monthly support for July at $105.43 with the weekly starc- band at $102.87
The economic data for the consumer continues to improve as the Consumer Confidence rose to 101.4. The resistance from the 1001 and 2007 highs, line a, is now being tested as the confidence shows a clear uptrend. This should be a positive sign for consumer spending in the coming months. Pending Home Sales data was also strong though prices according to the S&P Case-Shiller HPI just rose slightly.
The monthly jobs report came in pretty much as expected while the data on manufacturing needs to get even stronger to be more confident of about the economy in the last half of the year. The ISM Manufacturing Index improved slightly to 53.5 and new orders continue to look strong. But the chart of the ISM shows that it is still in a trading range, lines a and b.
There is new data on the services sector Monday with the PMI Services Index and the ISM non-Manufacturing Index. The latest release of FOMC minutes is on Wednesday followed by jobless claims and chain store sales on Thursday. The unofficial start of the earnings season is on Tuesday when Alcoa, Inc. (AA) reports its earnings.