MomentumOptionsTrading.com Morning Update for 5/7/14
Terrible Tuesday For Bulls
The market dropped for the first time on a Tuesday to end its winning streak at 7. The talking heads might have jinxed the bulls as they were babbling about 15 of the past 17 Tuesday’s being positive. The bigger picture was the technical damage that was done that could cause a continued trading range.
The Dow tanked 129 points, or 0.8%, to settle at 16,401. The blue-chips opened in the red and remained that way throughout the session with a steady decline into the close. Support at 16,400-16,350 held following the bears push to 16,399.99. The hold was bullish but the drop out of the 16,600-16,500 zone was bearish.
The S&P 500 sank 17 points higher, or 0.9%, to end at 1,867. The index opened a point below Monday’s close of 1,883 and went out at session lows after falling through support at 1,875. Support will try to hold at 1,860 followed by 1,850 on any pullback.
The Nasdaq got plummeted 57 points, or 1.4%, to finish at 4,080. There was no love for Tech as the bears easily broke through 4,100 and went out at session lows. The bulls held 4,075 but I’ve talked about the risk to 4,050-4,000 again if this level fails to hold. A pop back above 4,100-4,125 today would be slightly bullish but 4,150 has been a brick wall. Last Monday’s low was 4,014 and on the rebound back above 4,100 there was a double-tap at 4,070 that held as support. The bulls have a 10-point cushion to play with and a 20-point ride ahead of them to get back to home base.
The Russell 2000 got rocked for 18 points, or 1.6%, to close at 1,108. The small-caps have worried me after testing 1,102 last Monday and failing at precisely at 1,139.01 two Friday’s ago and 1,137.80 last Friday. The 1,140-1,150 zone has been a nightmare since. The bulls have some support at 1,102 and the mid-April low of 1,095 but 1,075 could come quickly on another drop below 1,100. A close above 1,115-1,125 would be slightly bullish if the bulls can get there by today’s close.
The S&P 500 Volatility Index ($VIX, 13.80, up 0.51). The close back above 13.50 was bearish following a high of 13.90 but the VIX did turn negative to 13.28 shortly after Wall Street’s lunch break. A close above 15 would suggest market momentum is slowing while another drop below 13.50, and more importantly 12.50, keeps all-time highs in play.
One day doesn’t make a trend but if there is continued weakness today and the rest of the week, May could turn out to be bearish after all.