The Week Ahead: Market Wrap

Market Wrap

Stocks were hit hard in early trading Friday but did manage to stabilize in afternoon trading as most of the major averages closed well above the day’s lows. The Dow Industrials lost 1.8% for the week as it was the seventh day in a row that the Dow declined. The Transports were not far behind as they lost 1.7% while the Utilities were one of the bright spots as they were up 1.1%.

The S&P 500 was down 1.25% which was a better than the 2.6% drop in the small cap Russell 2000. The NYSE Composite was down 1.1% and the negative weekly A/D ratio has kept the NYSE A/D line (not shown) in its downtrend and below its WMA.

Fig6

The Spyder Trust (SPY) dropped to test the daily starc- band and the quarterly pivot at $207.38 before closing well above the day’s lows. The late July low at $206.26 is still holding with the monthly pivot support at $205.36. There is important support in the $204.50-$205 area, line b. There is short term resistance at $209.72 and the declining 20 day EMA with further at $211.45.

The S&P 500 A/D line is slightly below its WMA but shows no increase in downside momentum. The A/D line has key resistance at line c which needs to be overcome to signal that the correction is over. The daily OBV has broken its uptrend (line d) and is now in a clear downtrend.

Fig7

The PowerShares QQQ Trust (QQQ) lost 1.47% for the week as the biotech stocks were hit with heavy selling. The iShares Nasdaq Biotechnology ETF (IBB) lost 3.6% for the week. The QQQ has next support in the $107.43 and the quarterly pivot. The weekly starc- band is at $104.18. There is resistance now in the $111-$113 area.

The Nasdaq 100 A/D line again tested the downtrend (line c) before turning lower. The A/D is still holding above the short term support at line d. A break of this level would be more negative. The OBV is closer to important support at line e, and is below its WMA.

The iShares Russell 2000 (IWM) closed below the July lows and the more important support, line f, in the $120-$121 area. The daily starc- band is at $118.29 with the weekly at $116.08. The sharply declining 20 day EMA is now at $112.66 with last week’s high at $123.53. The quarterly pivot is at $124.20.

The Russell 2000 A/D line dropped below support, line h, on July 23rd and closed the week just barely above the recent lows. The WMA is declining more sharply with key A/D line resistance at line g. The daily OBV is weak with next support at line i. The weekly OBV (not shown) is still holding above its WMA.

There have been no signs of panic liquidation yet as the ARMs Index hit 3.19 in early July. I would expect to see a day or two of heavier selling before the correction is over. Last week’s drop in the highly favored biotech stocks could precipitate more nervous selling. Therefore I would wait to be an aggressive buyer until there are clear signs of a market bottom.