Take The Plunge!

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

I joined the MarketGauge team in March of 2014, Now a year and a half later, I’ve had a chance to study historic market action and I would think it’s safe to say that I have watched history in the making several times already.

The year-to-date consolidation in the markets as of a week ago was the tightest since 1927. After such compression, perhaps today’s biggest one day drop in 4 years should be no surprise.

The Dow (DIA) came in this morning down 5 percent at the open. After about 2 minutes of trading it was down nearly 1100 points at the lows. This gave the Plunge Protection Team a chance to come in and try to save the day.

We saw huge selling volume come in during the first half hour of the day and then rather light buying volume as the market rallied back from the lows. A sign that the Plunge Protection Team was hard at work buying instruments at a discount in key sectors an groups throughout the market, mostly in future’s.

Are the phases going to cycle? There’s good news if they do!

We have written in the past about the Cycle of Phases in which an instrument must fully cycle through all of the different phases from bullish to bearish and back to bullish, or vice versa, before truly holding a phase for a prolong trend.

Now that all of the major indices have broken their bullish phases and entered into distribution phases, the question becomes will the cycle finish or just keep playing this game of jump rope.

While market corrections and bearish phases are not always pleasant experiences, they do create big trading opportunities. Plus, the ugly phases tend to be shorter than the bull phases, so it’s not all bad news.

The Dow was the first to switch into a bearish phase with the Death Cross (when the 50 DMA falls below the 200 DMA) that occurred on August 10th. Now we see SPY not far from having its own Death Cross. The Nasdaq (QQQ) and the Russell 2000 (IWM) are still holding the distribution phase for now. Yet the negative slope in each of their 50 DMA’s makes one think they could soon have a Death Cross of their own.

S&P 500 (SPY) Held the lows from October 2014, but with 4 times the average volume and no other indication of a reversal, this could be in real trouble

Russell 2000 (IWM) Found support around 108 with just over 2 times the daily average volume. Needs to hold Mondays low or the October 2014 lows are next to be seen.

Dow (DIA) Wow, Down 13.84 at the lows. And even put in the lowest level since 2013. With 7 times the average volume. Shows that when people panic they go crazy.

Nasdaq (QQQ) An 18 dollar move from high to low, and around 4 times the average volume. Nearly revisiting the 2014 lows.

Volatility Index (VIX) Tried for the accumulation phase but failed to hold the 200 DMA at 24.46 on the close.

XLF (Financials) Possible reversal in the works if this can confirm over 23.43 tomorrow.

KRE (Regional Banks) So very oversold. Also a possible reversal if confirms.

SMH (Semiconductors) Strong volume on the bounce. But not enough of a rally for a pattern.

IYT (Transportation) Tested lows not seen since the beginning of 2014. Yet managed to close just under the October 2014 lows.

IBB (Biotechnology) Today’s low tested the 23 monthly moving average at 287.51but held and then also managed to rally back over the 65 weekly average at 315.57.

XRT (Retail) After the gap lower this tried to reclaim Fridays low but was unable to do so making 90.28 the place to clear.

IYR (Real Estate) Broke the monthly moving average at 72.08. with 68.23 the next support at the 200 weekly average.

XHB (US HomeBuilders) even with the strong move lower this managed to rally back and hold the 200 DMA at the close for an unconfirmed reversal pattern.

GLD (Gold Trust) Not much action here other than a dip away from the 100 DMA at 111.85.

SLV (Silver) Needs to hold at 14.00 and clear 14.60.

GDX (Gold Miners) Some support at 14.00 and if that fails 13.00 is the line in the sand to hold.

USO (US Oil Fund) Yet another new low here, big surprise. Still oversold.

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

TAN (Guggenheim Solar Energy) Looked stronger this morning yet the volume slowed and this could not hold near the highs. Closed down 9.41%.

TLT (iShares 20+ Year Treasuries) Possible blow off high with nearly double the average volume.

UUP (Dollar Bull) 23.93 is the next support at the 65 weekly moving average.

IFN (India Fund) Possible reversal here as well.

CORN (Corn) Huge move back from the lows and even closed green.