Last week’s review of the macro market indicators suggested heading into August options expiration week that equity markets looked to be consolidating in the short term and better long term.
Elsewhere, we looked for gold (GLD) to continue the bounce in its downtrend while crude oil (USO) just continued lower. The US Dollar Index (UUP) seemed content to move sideways but with a short term downward bias while US Treasuries (TLT) were biased higher. The Shanghai Composite (ASHR) looked to continue to consolidate in the longer uptrend while emerging markets (EEM) looked ugly with more downside to come.
Volatility (VXX) looked to remain subdued keeping the bias higher for the equity indexes SPY, IWM and QQQ, despite their failure to move higher last week. Their charts showed weakness continuing in the IWM and consolidation in the SPY and QQQ short term. All looked better longer term with the QQQ strongest followed by IWM and then SPY.
So a hint of weakness was clearly an understatement. The week played out with gold thrusting higher while crude oil continued the move lower. The short term downward bias played out in the US dollar while Treasuries bounced in a range ending slightly higher. The Shanghai Composite held up early in the week until falling off to new 1-month lows while emerging markets continued lower making a new 6-year low.
Volatility jumped to levels not seem since the October 2014 market low. The equity index ETFs started the week continuing in their recent ranges, but the IWM started to crack to the downside Wednesday. SPY and QQQ followed suit Thursday and it turned into a bloodbath, with all 3 finishing at new 6-month lows. What does this mean for the coming week? Lets look at some charts.
SPY Daily
The SPY started the week pushing higher to resistance, but then printed an inside day, or Harami Tuesday. Wednesday saw that confirmed lower as a reversal and followed through Thursday. The move Thursday took it to the bottom of the 6-month range. Friday continued lower though and with a vengeance closing at the low of the week and on strong volume, at levels not seen since the October 2014 low.
This brought it back to support from the January timeframe, and well outside of the lower Bollinger Bands®. The RSI on the daily chart is now oversold and the MACD is moving lower. On the weekly chart the strong move lower drove to the bottom of the consolidation box and near prior trend support. The RSI on this timeframe is now into the bearish zone and falling with the MACD falling.
There is support lower at 197 and 194.35 followed by 191.70 and 188. Resistance higher comes at 198 and 199.5 followed 200 and 201.60 before 202.40 and 204.40. Continued downside with possible oversold bounce.
SPY Weekly
Heading into the last full week of August the equity markets look horrible, ready for more downside. Elsewhere, look for gold to continue in its uptrend while crude oil continues lower. The US Dollar Index is consolidating sideways with a downward bias while US Treasuries are biased higher. The Shanghai Composite and emerging markets are biased to the downside with risk of the Chinese market running sideways in consolidation.
Volatility looks to remain elevated above the prior stable period, but usually does not hold these levels long. This will keep the bias lower for the equity index ETFs SPY, IWM and QQQ in the short run. Their charts suggest the downside move is not over, but all are very oversold and could see short term bounces early in the week. Use this information as you prepare for the coming week and trade ’em well.
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