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6 Charts Show a Market on the Brink

Avoiding risk is the name of the game

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The first day of a fresh trading week saw the S&P 500 INDEX, RTH start off on a weak note.  Financials including Bank of America (NYSE:BAC) and JP Morgan Chase (NYSE:JPM) led the broader market lower while defensives like consumer staples, utilities, and healthcare outperformed on a relative basis.  Bonds also rallied as one would expect on such a day so all in all it was a classic and much needed consolidation day where risk aversion and profit taking for those fortunate enough was the name of the game.

Spying at the S&P 500 we note that with yesterday’s sell-off now brought the index right back to the downtrend line where on July 1 it broke higher from and right to the second area of support near 1320 that I discussed yesterday.  Next support is at 1,310 followed by the 1,300 area.  Technical analysis 101 here would dictate that a retest of the blue downtrend line would now lead to higher prices again.  Given that this is a fairly obvious level however I would not put too much weight on it but rather see 1,310 and 1,300 as more trustworthy bounce levels.

It so happens that those two levels also coincide with the 50% and 61.8% Fibonacci retracement levels.  And if you’ve read my analysis for a while you know that I prefer to see a multitude of technical indicators come together at any given level to make it more trustworthy as support or resistance.

spx technical analysis

The most troubling chart of the day? JPMorgan (NYSE:JPM).  The stock’s 3.22% slide yesterday took it right back to the June 28 lows and as such nullified a quite hopeful breakout from earlier last week. Citigroup (NYSE:C) too snuck in a curveball and got hammered lower to the tune of 5.33%.  What do those two stocks have in common you ask?  They both report earnings later this week.

jpm technical analysis

The potentially most interesting and bearish action for stocks yesterday took place in the currency markets where the dollar index rose and is now just ticks away from successfully completing a higher high and breakout of the narrowing trading range on the chart below.

dollar futures technical analysis


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