It’s too early to tell if the bears are ready to do some damage but Wednesday’s pullback was a wakeup call for the bulls. With one week to go before the sequester cuts could possibly take place, the selling pressure picked up steam in the second half of trading as the indexes finished back below resistance that was trying to hold as support.
The talk on the tube was yesterday’s drop was the worst day of the year for the bulls but the flip side of that coin is that it was also the BEST day of the year for the bears.
The Dow fell 108 points, or 0.8%, to finish at 13,927. Short-term support at 13,900 held as the low checked-in at 13,919. The important test will come at 13,800 if 13,850 is breeched and where we could start some short positions. The blue-chips are still trying to clear and hold 14,000 and made a run to 14,058 after the open but that opportunity could be fading if the bears get serious.
The S&P 500 sank 19 points, or 1.2%, to settle just below 1,512. The index made a push past 1,530 but fell back below 1,525 after a one-night stay at the Holiday Inn. The penthouse is at 1,550 and still within reach we we have been warning to watch 1,510 and then 1,500 to the downside. Yesterday’s low was 1,511.41 and we could be getting close for a short-term trade on the S&P if support starts to crack.
The Nasdaq dropped nearly 50 points, or 1.5%, to close at 3,164. Tech spent the entire session below the breakeven line and touched a low of 3,163 after failing to hold 3,200. The close below 3,175 was also bearish as it gets 3,150-3,125 in play.
The Russell 2000 got raked for 18.50, or 2%, to end at 913. The small-caps also spent all day in negative territory and closed at is lows for the session. We have warned of 910 coming back into play and a drop below this level and then 900 could lead to 875. A close back above 920 would be bullish.
The S&P Volatility Index ($VIX, 14.68, up 2.37) surged a whopping 20% and went out at its highs for the session. We have warned all year long to look for a close above 15 as a signal the rally is fading but we lowered that in the Weekly Wrap to 14.75. If you flinched yesterday, it was okay.
As you can see and maybe feel, all of the index and the VIX are just outside of our breakdown targets for another leg lower, and possibly a 5%-10% pullback. We did start a few short positions yesterday that did super well after our midday update and we may be adding some NEW TRADES this morning after the open so stay locked-and-loaded.
Futures are showing a slightly lower open and look like so: Dow (-33); S&P 500 (-4); Nasdaq 100 (-11). Subscribers, check the Members Area for the updates.