As fear start to make its way back into the market, the small cap sector is the first one to falter and we can see that by the recent price action from the Russell 2000 index, RUT. As fear starts to build, risk will start to be reduced and money will start to be exiting the small cap stocks and put into more perceived to be safer large cap blue chip stocks. The RUT was the first index to make a new all time high when it closed at 873.42 on 1/2/13, then it continues higher until it reached its recent new all time intraday high on 3/15/13 at 954, the day after a new all time close high was made at the value of 953.07 on 3/14/13. On 4/1/13, it broke below a multi-month supporting trend line. Since then, the first 5 days in April resulted in 4 out of 5 down days with only one up day. It broke below a flattening 50 days moving average on 4/3/13, and a relief rally on the following day help it closed slightly above the moving average. On 4/5/13, after an initial selloff caused by the disappointed job report, it spend the entire session similar to rest of the market climbing back to recoup most of the losses from the open and closed near the high of the day. It still ended with a small loss and closed underneath the 50 days moving average. Although the RUT shown some resilience and some strength by printing a hammer like candle with a large body candle, unless it can close above the 932 level, the decline will likely to continue and probably will not encounter any possible support level until it reaches the 896 level, which is also coincide to the 78.6% Fib retracement level.
The tech heavily weighted index Nasdaq 100, NDX continues to struggle to breakout the trading zone between 2770-2820 and found itself ended up trying to hold above its 50 days moving average. Having other big cap tech stocks such as GOOG, AMZN and NFLX joining AAPL on the decline path, the NDX will likely continue to move lower. In the last trading session, this index also broke below its multi-month supporting trend line and it doesn’t appear to be near any support levels until it reaches the 2725 where the 78.6% Fib retracement and its 200 days moving average are stationed.
As for the Dow Jones Transportation index, DJT has been making a lower low, lower high since it closed with a new all time high on 3/14/13 at 6281.24. It also broke its multi-month supporting trend line and its 50 days moving average on an intraday basis during the last trading session. But just as it appears to be heading down to its possible support level of 5780, an oversold rally appeared and helped the index to close above its 50 days moving average and stayed above the supporting trend line with a long handle hammer. The DJT was the first to turn downward and it is currently oversold, the oversold rally could continue until it encounters likely resistance near 6120 area. As for the direction of this index, it needs to move above 6120 and make a new all time high in order to reverse the current downtrend. If it fails to move back and hold above 6120, it could be a long time before this index will breach the all time closing high.
While the DJT starting to establish a downtrend, the Dow Jones Industrial, DJI still sitting near its all time closing high of 14,662.01 made on 4/2/13. This is an expected behavior from the DJI as the Dow Theory put up a big red flag signaling a potential top is in the making (if it has not made a top on 4/2/13) from the DJT non-confirmation. It is also a clear sign of the expected flight to quality rotation near a market top that help the DJI to project a false sense of wellness in the market to the non-informed market watchers and market participants. Since this index broken through its resistance level near the 14,173 on 3/5/13, it reached the 127.2% Fib retracement level where it made its new all time closing high on 4/2/13. If the Dow Theory signal behaves without any distortions from the market manipulators, then the DJI should be heading down toward a test of support near the 14,365 area where the supporting trend line is located. Although this support level might not appears to be that far away from the last closing level of 14,565.20, but by breaching this support level will alter the market sentiment from buy-the-dips to sell-the-rips.
Finally, the SP500, SPX made its new all time closing high on 4/2/13 at 1570.25 but failed to reach the previous all time intraday high of 1576.09 made on 10/11/07 by less than six points. For the serious students of the market, they know what is important is the close, not the intraday numbers which can be fabricated. In a typical market cycle, the DJI is usually the last index to make the new high, not the broader market index such as SP500. This time it appears the laggard was the SP500 or is it? If the market is to behaves in its typical fashion, this imply the DJI could have another non-confirmed new all time high in the near future in order to put this market cycle back into its normal pattern. So we need to ask ourselves “Is this time different?” If you were to take this subtlety and wait for the DJI to make another new all time high, then you could end up waiting for a long, long time. But, there is the possibility that indeed the DJI will make another new high in the near term and get all the remaining sideline money into the trap before it snaps. But in regardless, the market is in a volatile state where it can run up sharply to form the climatic top or it will drop in a violent fashion similar to all the movie watchers are rushing out of the theater when they hear someone scream “Fire!” In the meantime, the SPX recaptured most of its last trading session losses and closed near its intraday high. The likely near term resistance for the SPX will be its recent new high near 1570 area, and the near term support is likely to be near 1530, also where its 50 days moving average is currently located.
As a market watcher and a trader, one needs to listen to the messages the market sends and interpret them accordingly. If one is trying to anticipate what the market will do, the market will surely remind you who is in charge by causing great damage to your ego and more importantly to your trading account. So be patient and tune in to listening to the market not the talking heads. Trade cautiously.
