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The bears did their part to keep the current trading range intact Tuesday, as they recovered the bullish gains on Monday and then some. The lower highs and lower lows are becoming a fresh worry that is signaling additional weakness ahead.
The Dow Jones Industrial Average tumbled 140 points, or 0.8%, to end at 17,750. The blue-chips stayed underwater throughout the session, with the bears pushing a low of 17,670. Support at 17,700–17,600 held. Resistance is at 17,800–17,900 following Tuesday’s open and high of 17,870.
The S&P 500 stumbled 18 points, or 0.9%, to settle at 2,063. The index opened at 2,077 and made a steady fade to 2,054 while pushing support at 2,050. The bounce off of the lows fell shy of upper resistance at 2,070–2,075, but a recovery of the 2,080 level would keep 2,100 in play.
The Nasdaq tanked 54 points, or 1.1%, to finish at 4,763. Tech opened below 4,800, which is now resistance, before sinking to 4,749. A close below 4,750–4,740 and the 100-day moving average would be a bearish development that would likely lead to 4,725–4,700.
The Russell 2000 sank 19 points, or 1.7%, to close at 1,121. The small-caps were the weakest link after bottoming at 1,116 during the first half of the action. Support at 1,125–1,120 was stretched, and the close below the 200-day moving average was slightly bearish. There is risk to 1,110–1,100 and the 50-day moving average if 1,115 fails.
The CBOE Volatility Index (VIX) regained 6% after trading to a high of 16.42. Resistance at 17–17.50 and the 50-day moving average held. Support is at 15–14.50, followed by 13.50–12.50.
Microsoft Corporation (MSFT) is looking like a good bearish play. The company recently reported a profit of $0.62 a share, which fell $0.02 shy of estimates. Revenue of $22.1 billion matched forecasts. Microsoft also slightly lowered year-over-year growth numbers.
The technical setup, along with lowered guidance, makes me feel comfortable going “short” MSFT with put options. The 50- and 100-day moving averages are at the start of a major downtrend, and the 200-day moving average is leveling out.
Buy the MSFT June 47 puts (MSFT160617P00047000) at current levels, around $0.65.
Near-term support for the stock is at $49.50–$49.25. A move below $49 could lead to a retest of the February low of $48.19. Multi-month and backup support are at $46–$45 if $48 fails. Resistance is at $50–$50.25 and the 100-day moving average.
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