There was no doubt which side had control of markets on Friday. Bears stepped in and sold stock in volume on Jerome Powell inflation comments. Futures remain testy heading into Monday so we have to re-consider the outlook for the markets. I had thought last week's mini-rally was coming a little early with a preferred move for 50-day MAs test as part of a move into Fibonacci retracements (for the move off June lows). Friday's selling did bring markets into the upper levels of the Fibonacci retracement, and with weak Futures, we could see 50-day MA tests early next week.
The Nasdaq was the weakest index heading into Friday and suffered the biggest percentage loss on the day. There was no surprise to see distribution control volume with ADX moving to a new 'sell' in line with 'sell' triggers in On-Balance-Volume and the MACD. The index continues to underperform the S&P. I would be looking for the Nasdaq to test its 50-day MA first, which would be an ideal test of the 50% Fibonacci retracement.
The S&P reached down into the 38% retracement zone of the June-August rally with a new 'sell' trigger in On-Balance-Volume, following the distribution selling from Friday. Like the Nasdaq, there was also the 'sell' trigger in the ADX trend metric. Again, as with the Nasdaq, we can look for a test of the 50-day MA early next week.
The Russell 2000 is still the relative outperformer of the lead indices and Friday's selling only tagged the June high (and hasn't yet hit the Fibonacci zone). Volume ranked as distribution as hit other indices and the first technical break for the index was a 'sell' trigger in the trend metric, ADX. However, it continues to outperform both the S&P and Nasdaq.
What Friday's selling opened was the potential for a zig-zag corrections which would make tests of the 50-day MA an ideal end-point for the August sell-off. Let's see if markets comply.