Bears Growl, Bulls Hold 20-Day MA's
While the Wall Street pros took an extended vacation, we knew putting in a half day's work last Friday would pay off. Since we LOVE what we do, watching and trading the market isn't really work and we had fun as we listened to some office tunes and fiddled with our new xBox One. Even better, the bears gave us just enough clues to prepare for a pullback. This is one of the reasons we cover support and resistance every day and why we work every Sunday to stay one step ahead of the crowd.
The 20-Day MA's have held up well since mid-October and haven't been threatened - until yesterday. Today will be an important test for the bulls and with Nonfarm Payrolls due out on Friday, there could be a major move forthcoming. With everyone and their sister expecting a major pullback, the market is ripe for a selloff but the bulls have made fools of the short sellers all year long.
The Dow declined 94 points, or 0.6%, to end at 15,914 on Tuesday. The blue-chips opened north of 16,000 at 16,004 but quickly tested 15,900 and the 20-day MA. Yesterday's low was 15,859. The next layer of support is at 15,800 and then 15,600. The 50-day MA is at 15,545. Resistance is now at 16,000-16,100.
The S&P 500 sank a 6-pack, or 0.3%, to finish at 1,795. The index opened at 1,800.10 but also gave up round number support after trading to a low of 1,787. We said there would be risk down to 1,775 on a close below 1,800 and the 20-day MA is 1,786. A close below these levels will likely get 1,750 and the 50-day MA in play. Resistance is at 1,800-1,810.
The Nasdaq fell 8 points, or 0.2%, to close at 4,037. Tech held up well as we mentioned the bulls had a 1% cushion to play with before 4,000 triggered. We were looking for 4,025 to hold on a pullback and the low checked-in at 4,022. The bulls pushed 4,050 and positive territory shortly after the open before fading. If the bears crack 4,000 we said there would be risk down to 3,975-3,950 and the 50-day MA.
The Russell 2000 dropped 5 points, or 0.5%, to settle at 1,123.78. The small-caps opened right at 1,125 and a level we were looking for the bulls to hold. We have mentioned a close below this level would get 1,110-1,100 back in the mix and Tuesday's bottom reached 1,119. Resistance remains at 1,150 if the bulls can reclaim 1,125-1,130 this week.
The S&P 500 Volatility Index ($VIX, 14.55, up 0.32) spiked again and we said not to flinch until the VIX CLOSES above 15. If you blinked on the test to 15.04 that was okay but we are not ready to load up on short positions or buy put options until the bears can clear and hold 15. If they can, a test to 17.50-20 could come on further weakness. A close back below 14-13.50 would be bullish.
As we head to press, here is how futures are shaping up: Dow (+16); S&P 500 (+2); Nasdaq 100 (+4).