After last Thursday's nearly 1900-point decline, I recorded a video for StockChartsTV (at the bottom of the page). Then, on Friday, we saw four distinct trading patterns emerge.
First, many instruments had inside days or traded within the range of Thursday's trading range. Is this surprising? Nope, as digestion, after feasting on the meat of the bulls, is practically mandatory. Second, several instruments made new 60+ day lows on Thursday and are digesting right near a major moving average. Third, some instruments simply outperformed, yet tested major moving averages offering a much more sensible risk. Finally, and here is the stick in the mud, NASDAQ 100 confirmed an island top. Technically, that is a sign of a top. The question is, how much more downside if any, will this island yield?
A classic inside day pattern can be seen on the Dow Jones Industrial ETF chart (DIA). Although DIA is currently trading beneath the 200-DMA, since Thursday's high sits right on the 200-DMA, a break of the inside day pattern would correspond well with a move over Thursday's high or the 200-DMA. On the other hand, a break below Thursday's low would suggest significantly more downside.
An instrument that made a new 60+ day low, followed by an inside day and sitting on a major moving average, is Space or Virgin Galactic. Therefore, a move over last Thursday's high offers a great risk to under the 200-DMA. And, like DIA, if it breaks Thursday's low, it also breaks the 200-DMA, suggesting lower prices ahead.
An instrument holding a major moving average that did not sell off as much as the indices did is Baidu (BIDU). That also offers a great risk to under the 200-DMA. And, again, you do not want to see this break under last Thursday's low.
Alas, we must go back to the stick in the mud, or NASDAQ 100 and its island top. An island top leaves literally an island. An instrument gaps up and can hold that gap up for one or more days. Then, what makes it an island is that it will then gap down, leaving the price standing alone, surrounded by space (water), like an island. QQQ had a one-day island as it gapped down last Thursday.
Statistically, the overall performance rank for island top breakdowns is 38 out of 53 (tops). That means the downward pressure on the market could outweigh the other three more potentially bullish patterns. Nevertheless, QQQ could also wind up to be one of 15 out of 53 times the island does not work and the gap gets filled.
I go through a lot of these charts during the 30-minute presentation I made for my show on StockCharts TV, which aired on Friday, June 12th.
- S&P 500 (SPY): Like BIDU, held the 200-DMA at 300 - now pivotal
- Russell 2000 (IWM): 142 resistance with support at 129.50 (the 50-DMA)
- Dow (DIA): 251.38 has to hold after the inside day. A move over 263.35 clears the 200-DMA (263)
- Nasdaq (QQQ): Island top - rare - will most likely confirm unless trades to 244.51. Support 220
- KRE (Regional Banks): 41.45 resistance; support at 36.15
- SMH (Semiconductors): Inside week, so there's that. 139.78 last week's low - 150 resistance
- IYT (Transportation): 158 support to hold or then see 150. 168 resistance
- IBB (Biotechnology): Tested and held the 50-DMA. 126 key support
- XRT (Retail): Landed right on the 200-DMA, so 40.50 held and must keep holding
- Volatility Index (VXX): Confirmed the bullish phase. 34.50 support
- LQD (iShs iBoxx High-Yield Bonds): 132 pivotal
Director of Trading Research and Education