Weekly Market Recap For 8/16/2015

Last Wednesday, August 12, 2015, the market had a dramatic reversal day. After the first hour of trading, the SP500 was down as much as -31.98 (-1.5%) and the DJ Industrial was down -277.03 (-1.6%) points. The Nasdaq 100 and the Russell 2000 were down by -77.45 (-1.7%) and -21.72 (-1.8%) points respectively within the first 90 minutes of trading. At the close, the SP500 ended up 1.98, the DJI closed with a small loss of -0.33, the Nasdaq 100 gained 14.20 and the Russell 2000 ended with a loss of -2.16. To many market participants, this looked like a typical oversold rally. However, for the market watchers, it is more than an oversold bounce.

If one had looked at the market internals, one would have noticed the development of a positive divergence amongst the indices and signs of improvement on some of the market breadth indicators. If one had watched the Dow Jones Industrial index against the Dow Jones Transportation index closely, one would have noticed on July 27, 2015 the DJI made a post all time high new low while the DJT made a higher low. A repeat of this pattern occurred again on August 7, 2015. On the following Monday, August 10, 2015, I’ve posted this tweet on my Twitter stream to remind everyone to pay attention to the Dow Theory:

$IYT keep an eye on the Dow Transport. $DJT Don't forget, Dow Theory works in both directions! @Fiberton @TwirlyLindylou @s_evans2

— smtrader StockTrader (@smtraderCA) August 11, 2015

Based on the Dow Theory non-confirmation, the market has alerted us to watch for a potential turn as it had reached a turning point.

The SPX continues to hold above the 2079.11 support. The 2108.86 remains to be the potential resistance or near term target. From the recent divergence, it would be more likely for the SPX to tag the 2108.86 before it would retest the 2063.52 support.

SPX

(click on the chart to enlarge)



For the SPY, it remains to be above the 207.95 with the levels at 211.63 and 211.99 as its potential resistance

SPY




The NDX is inching its way toward the 5/27/15 close at 4546.06. The near term potential resistance/target remains to be the 7/22/15 gap at 4643.83 with the 7/13/15 price gap as potential support.

NDX




The Russell 2000 made a post all time high new low last Thursday, August 13, 2015. It has been the weakest performer. This situation is not new as the Russell 2000 had lagged the other major indices before only to follow by a period of out-performance that resulted in catching up to the major indices. If the RUT continues to remain weak, then it could dip to the 2/3/15 price gap. If it can move above the 1215.42 level, than the 1238.76 could be the potential near term resistance.

RUT




Although the market had signaled its intention, but it didn’t and never will indicate how it will achieve its objective. Furthermore, there is always the possibly of a black swan event that will set the market into a tailspin. As always, one should remain cautious and expect the unexpected as the market makes its transition.