Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
U.S.stocks closed off their lows on Monday, but in the case of the S&P 500 index still closed lower for the sixth session in a row. Whether investors were concerned about the new debt deal passing through Congress or if they were spooked by weak manufacturing figures, the major indices are looking weaker each day.
As I wrote yesterday, stocks have now come down more than I anticipated just last week, and as such, I foresee any potential relief rally over the next few weeks to be contained and not get the S&P 500 much beyond the 1,330 to 1,340 area.
We must evaluate anew each day, take the market’s temperature and stay true to our plan and word. These markets are challenging, but if we keep any biases out of the picture we can arrive each day/week/month by being open to whatever the markets want to do, which puts us in the best position to place profitable trades.
The S&P 500 has now formed a head-and-shoulders pattern with the neckline being the upward slowing blue line, which currently comes in just around 1,270. For ultimate confirmation that we are heading toward 1,200 we would need to take out the June lows around 1,258 and see further weakness in the other major indices as well.
As for the Nasdaq 100, it looks much better technically than the S&P 500 – you can thank Apple (NASDAQ:AAPL) for that — and in fact is still holding its 50% retracement level from the late June/early July rally. It also yesterday left a solidly long tail below its daily candle, giving at least some hope that it could move higher.
Volatility as measured by the CBOE Volatility Index (VIX) has in recent days moved sharply higher but still remains well below the March spike. In fact, the index yesterday traded lower than last Friday, because many investors already bought their protection last week.
I usually point out the semiconductor group of stocks by showing the PHLX Semiconductor Index (SOX). However, we can also get a good gauge of these stocks by looking at the
Semiconductor HOLDRs (AMEX:SMH), which shows good support at the $32 level. A daily break below there would clearly not bode well, so let’s keep an eye on it.
We will look at individual sectors again in tomorrow’s analysis. After yesterday’s session I remain of the opinion that a relief rally could ensue here, but as stated above, any such rally should be contained below 1,340 on the S&P 500, followed by weaker prices into late August/early September.
- See Sam Collins’ Daily Market Outlook: One Sector You May be Able to Count On
- See Sam Collins’ Trade of the Day: DDS Stock Priced Right
- See Serge Berger’s Trade of the Day: Short XLI on a Relief Rally
