MORE OF THE SAME: UP, DOWN, AND LATERAL NEAR TERM PRICE SWINGS

 

To paraphrase a study conducted by Ned Davis Research, the S&P 500 (SPX/2938.79) has historically averaged three dips of 5% or more per year. Don’t look now, but using intraday prices, this has already occurred in 2019: May/June, a -7.9% dip, July/August, a -7% dip, and September/October, a -5.7% dip. 

To carry this train of thought a bit further, with the current round of trade talks between the U.S. and China lasting until Friday, expect more intraday and day-to-day volatility this week and possibly into mid-to-late October. Within the context of a primary uptrend by the U.S. Large Cap equity market, this action would be an extension of what the U.S. equity markets have experienced thus far this month. According to Willie Delwiche, “All four trading days of the month, so far, have featured intraday swings of more than 1%. With the pace of Q3 earnings reports set to intensify over the next several weeks, as well as continuing geopolitical developments (at home and abroad), there may be little respite from the noise in the near term.” (Bold added.)

S&P 500 Large Cap Index. S&P 500 with rising 200-DMA support, currently at 2843 - solid green line. Wide, multi-week/month trading range continues.

Bottom line: I would classify last week’s intraday low and rising 200-DMA as a critical near-term “line in the sand” support levels. If the recent -5.7% dip is over, domestic equity market indices should stay above these levels. If the near-term support levels are violated, I believe the odds would favor a retest of the August intraday support lows, between 2835 and 2822 (green rectangle on previous chart). 

ADDITIONAL CHARTS OF INTEREST

Dow Jones Transportation Average (TRAN/10014.56): Speaking of the critical line in the sand support, the difference between the previous SPX chart and the TRAN chart below is that I wouldn’t classify the support shown on the TRAN chart as near-term support, but critical intermediate-term support.

Alternatively, should China and the U.S. agree to some type of trade deal that ultimately reduces or eliminates tariffs, a breakout above the red downtrend line and the two most recent price peaks may be enough to fuel a significant rally in Transportation stocks. See the next chart for levels.

Dow Jones Transportation Average Index. A decisive violation of support would create a big “headwind”.

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UPCOMING EVENTS

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Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management

— Written 10.07.2019. Chart source: StockCharts.com, unless otherwise noted.

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