Is the market setting up for more trouble?

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Note: Tonight’s evening watch was written by Jonathan Griffin Assistant Director of trading education and research.

Tuesday’s action in the market was mostly what one would have expected after Monday’s massive sell off. Mostly sideways with inside days in SPY and IWM. QQQ and DIA only slightly broke out of Mondays range yet could not hold the rally and closed near the lows.
During the last hour of the day we saw a steady volume increase to the downside, showing that the sellers are not done yet.

With the markets weak and the cycle of phases getting more negative throughout the indices one should be asking, “Is this the bottom? Or just the beginning?”

With long term cycle analysts calling for a top in September, China in trouble and the dollar looking weak in the face of a potential interest rate hike, it would seem this is only the beginning.

But maybe there is still hope…

If we look to key sectors in the market there may be some hope yet. For that I tend to look to select members of our Modern Family. For instance, Regional banks (KRE) after Monday’s new sixty day low gave us an inside day. If this were to show strength on Wednesday and close over Mondays highs we have a reversal pattern in the works.

Biotechnology (IBB) touched down on major monthly support on Monday and bounced nicely from there to retest the 200 DMA.

This of course isn’t to say that we won’t still see selling or even a bear market. More to the point that there will always be the key areas that outperform the rest.

Get caught in the flush? We didn’t!

Being aware that extraordinary moves happen after a long period of consolidation can make all the difference in being prepared and on the right side of the market Having the proper risk/reward set up in your trades ensures that even if the worst case scenario happens you can still come out ahead!

This is why you have heard us at MarketGauge go on and on about having the proper three to one ratio of reward to risk, and that you need to wait patiently for trades to set up.

Be patient and picky the extreme volatility is not over.

If you look at the intra-day price action in the indexes you’ll see that accept for the spike low in yesterday’s opening ten minutes, the market has spent the last 2 days coiling in a range again.

S&P 500 (SPY) Inside day that closed near the lows. Needs to hold 182.95 or look out below!

Russell 2000 (IWM) Also an inside day that closed on the lows. Needs to hold 108.26 or we could see a move down to 101.42 the next weekly support.

Dow (DIA) Starting to feel like 500 is the new 200. Next support is the 200 weekly moving average at 152.64

Nasdaq (QQQ) Still holding up the best with support in a few places. First with monthly support at 97.65 and then weekly support at 81.82, although if it hits the weekly support we are in for some pain in the meantime.

Volatility Index (VIX) Managed to reach the unconfirmed accumulation phase on double the daily average volume.

XLF (Financials) Could not confirm the reversal. Needs to clear back over 23.04 before this starts to look better.

KRE (Regional Banks) Inside day with some resistance at 40.46 that needs to clear.

SMH (Semiconductors) Big volume selloff here with the next clear support at 41.78.

IYT (Transportation) Inside day with double the average volume. Next support at 122.32.

IBB (Biotechnology) Good support at 315.58, but this really needs to clear back over 342.75 the 200 DMA for it to be any good!

XRT (Retail) If this can’t hold Mondays low then we could easily see it at 77.57.

IYR (Real Estate) Very weak. With double the average volume on todays down move. Leaving 68.23 as the next support.

XHB (US HomeBuilders) Inside day here with resistance at the 100 DMA at 36.49.

GLD (Gold Trust) Tested the 50 DMA at 108.93 and held.

SLV (Silver) Needs to hold at 13.73 and clear 14.60.

GDX (Gold Miners) 13.00 is the line in the sand to hold.

USO (US Oil Fund) Not quite so oversold anymore. But still doesn’t look good!

UNG (US NatGas Fund) 12.28 the 2015 low to hold

TAN (Guggenheim Solar Energy) Trying to move back up. Yet still has resistance between 30.95 and 31.10.

TLT (iShares 20+ Year Treasuries) Back to an unconfirmed recovery phase.

UUP (Dollar Bull) 23.94 is the next support at the 65 weekly moving average. With 24.91 resistance.