Market Cycle To Exert Downward Pressure On Stocks

Daily chart for the S&P 500 (SPX) on the thinkorswim platform
The stock market edged lower last week, despite reaching an all-time high of 2484. Thursday saw the tone change as the S&P 500 (SPX) sold off 25 points in a sudden reversal and the NASDAQ plunged a quick 150 points as tech stocks dropped..
The technology sector, which has been strong this year, showed mixed results last week, with FANG stock the feature. On Monday night, Alphabet GOOGL beat on earnings, but weak ad clicks sent the stock lower. Facebook’s FB earnings beat, temporarily lifting markets on Thursday. Then Amazon (AMZN) missed on earnings and fell as low as 1001 on Friday, only to continued lower on Monday, falling well below 1000.
Thursday’s sell off, which signified the return of volatility to the markets, was preceded by the CBOE Volatility Index (VIX) trading below 10 for all or part of 11 straight days, then trading at a historic 8.84.
In other news, Senate Republicans continued to face setbacks in repealing the Obamacare legislation, but it had minimal impact on the markets. Investor seem to be focused on the coming tax reform package.
The coming week will likely be action-packed. Earnings season continues, with Apple AAPL on Tuesday afternoon and Tesla TSLA on Wednesday afternoon. Also, we will know more about job creation, as ADP releases its employment report for July on Wednesday morning, and the Bureau of Labor Statistics releases its report on Friday morning.
In our previous articles, we discussed the end of the SPX’s intermediate market cycle in late-August. We expect this to produce a correction in conjunction with the shorter-term market cycles that appear as blue dotted half-circles on the bottom of the attached chart. As such, we will likely see more downside price action this week, as the SPX is in is corrective phase of its current short-term cycle. As these patterns play out, rebounds should be less powerful, and then downward pressure should increase as these cycles continue, potentially into early September.
Watch the askSlim Market Week for more a more detailed look at our short-term view on the SPX.