Gio's Market Rundown

We all know what happened this week – “HISTORIC DAY” they called it on CNBC. This poster sums it up via @Stocktwits

Last week (Dec 14-18), I focused on FEAR and how to measure it. Bottles popped and the “Santa Rally” cries were deafening as the $NDX reversed +4.7% from Monday’s low to Thursday’s open.  Sellers took total control at that point

The end result? Price took a 360 turn and all major indexes closed the week printing inverted candles below major weekly moving averages.

$NDX finisihed the week -0.92% and closed under the 10wma (4605) for a 2nd consecutive week, losing upward trend. More worrrisome, the $NDX ( as well as the $SPX) has printed 3 consecutive lower weekly closes. Support now @ 4470

$SPX closed the week under the 10/20/30/40 wmas. As stated last week, the rejection of the 10/40 bullish cross @ 2060 is a major concern and confirms the trend points LOWER at the moment.  

Taking another step back, the $SPX monthly chart has lost its 10 & 20 averages (2042 & 2020). It is extremely important to note two things in this chart:

1. Losing the 10/20 monthly avgs was only the beginning of the market crashes in 2000 and 2008.
2. The exception was the 2011 drawdown, in which price “played” with the middle Bolli for 5 months before resolving higher. 2015 is now in month #5

In summary, my POINTS OF CONCERN:

1. $SPX rejection of bullish 10/40 cross @ 2060. Remember this number as it may prove to be major resistance
2. $NDX lost rising trend by closing under 10wma (4605)
3. Given price reversal, the path of least resistance is lower. weekly Bollis retest = $NDX -8.8% / $SPX -4.8%
4. Per price action, reaction to Fed announcement was a textbook bull trap. Euphoria right into and right after event to get the dumb money excited … just for the smart money to sell the news a day later
5. $SPX monthly chart continues to deteriorate, displaying signs common of major market drawdowns

OK so charts took a major hit this week. But this post can’t be all negative. Below are some POSSIBLE POSITIVES to be discussed individually in detail below

1. Daily $NDX (and $SPX) chart closed the week at lower Bolli, could be a nice spot for a short term bounce
2. Seasonality favors upward trend starting Dec 15 into end of year
3. $WTIC (Crude Oil) is 1pt away from its largest decline ever of -68% – cheap gas!
4. As/If the $NAA50R approaches 20% (Nasdaq  % of Stocks Above 50dma), we will have an excellent market entry
5. Yellen and Shkreli Memes!

#1) $NDX Friday candle closed outside the daily bolli. Unless Monday brings absolute panic ala August, we could bounce here. For now, I don’t think a repeat of August happens here given Friday’s options expiration and seaosnality. Watch out for a possible bounce and follow through on Monday

#2) $SPX average return in Dec. (1990-2014) bottoms on 12/15 and a rallies into tear-end. (Data source: Yahoo Finance)

#3) Charlie Bilello (@MktOutperform) reminds us the largest $WTIC decline EVER was -68% (2009) while current decline is at -67%. I indeed think we make a new record in the low 70s. However, I expect a mean reversion afterwards which could provide a major headwind to $SPX $NDX price action in early 2016

#4) Gotta be patient with $NAA50R – wait for 20% and below to start thinking about loading the boat

FINAL THOUGHT

Allow me to be crystal clear – As long as the $NDX and $SPX trade under their 10 & 40 weekly moving averages, I am inclined to think a new bear market is starting. Until then, any bounces are treated as short term trading opportunities. The positives above will all need to confirm before going long again with a short timeframe in mind. I DO NOT recommend immidiately shorting the market due to possible support at lower bollinger bands on indexes. Best move right to start new positions:

New Longs  – wait for indexes to close over 5ema ($NDX = 4580 / $SPX = 2033)

New Shorts – Good shot at another rejection from $SPX 2060 and $NDX 4600. Both could be major resistance

As always, thank you for reading. Trade ‘em well – Gio

And now, the best Yellen memes found on @Stocktwits this week!