Market Overview

Key Index Charts to Watch

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Key Index Charts to Watch By Harry Boxer, www.TheTechTrader.com an AdviceTrade.com publication

Monday will be a day to remember for a very long time. The numbers I saw today in my 40 plus years of technical analysis are almost unprecedented. As a matter of fact, some of the numbers have never been reached. The market reached minus 438 on the McClellan Oscillator. The worst number I’ve ever seen is 394, and the market exceeded that on Monday.

Advance/declines on New York Stock Exchange were 46 up and 3113 down, on NASDAQ they were 122 up and 2590 down, a total of 168 stocks up and more than 5700 down. The ratios are astronomical and have never been reached before in history.

Up/down volume is even more amazing. On New York there were 25 million shares up and 2.44 billion down, or about a 100 to 1 ratio. On Nasdaq the numbers are even worse with 26.6 million up and 4 billion down.

The most extreme oversold readings ever are accompanied by the most extreme technicals.

We’re not going to go over individual stocks, but instead we’ll go over some indices to see where the market is at in time, because it’s going to be fruitless to tell you where support and resistance is until we get some kind of clarification.

The Dow Jones 30 Stock Index has gone from about 9700 up to 12,700 over the last year, or so, came down, bounced, double-topped around 12,750, and rolled over hard. It’s gone down nearly 2000 points in a couple weeks on the Dow and broken key short-term support. That could lead to even lower levels, but at this point the market is still so oversold that we should look for a snapback to test that level. It’s quite possible that there could be a 500 to 700-point rally in the next few sessions.

Going through the rest of the Dow Composite Indexes, the Transportation average has rolled over from almost 5600 to 4300. That’s a 1300-point drop in about the last four weeks, but in the last two weeks it's dropped over 1000 points, or more than a 20% drop. That’s a historical drop, to say the least. Key support was broken, and the trend line was broken a couple weeks ago. Look for something around a 350-400-point rally back to something around 4650, perhaps.

Nasdaq Composite Index had a massive head-and-shoulder top, then it spiked down in unprecedented proportions, dropping from 2850 to 2350, or 500 points, in just a couple weeks. That drop has taken it down about 18%.

The Utility Index, which held up very well with multi-year highs, had rolled over from 440 to about 390. That’s a very big percentage drop.

The Nasdaq 100 Index rolled over from about 2420 all the way down to 2060. That’s about 380 points, or about a 17% or 18% drop. The lateral price support was taken out, it then came down to a 2050.29 high near the trend line, which was pierced at the close on Monday, and could result in a snapback. The problem is when it gets a thrust to the downside like this, unprecedented in oversold proportions, it’s usually the beginning of a move, not the ending. Although it does set up a short-term snapback, it’s probably an indication that we should be exiting. If it gets a snapback that fails, and starts to rollover, we’ll have to be very careful. What may happen, though, is a snapback that doesn’t go into the consolidation phase before the next rollover.

The Russell 2000 has had a very dramatic fall from 857 to 650. That’s more than 200 points, or nearly 25%, in a dramatic drop below the neckline of the head-and-shoulders as well. It’s dropped precipitously and dramatically all the way back to the neckline of the head-and-shoulder’s pattern that was broken a year ago. A snapback here may not take it up much more than to the 700 - 720 zone, but it could get all the way back to 750 near the neckline of the breakdown.

The S&P 500 has had a dramatic breakdown of the short-term channel and the longer-term channel. It rolled over and broke key support at the neckline of the head-and-shoulders, went through a double-top, came down to the pullback that was broken in November 2009, and now it’s at the neckline of the head-and-shoulders pattern that was broken in September of last year. It’s right there. This is an area where it could snapback easily to 1160, but possibly to the 1200-1220 area. We’ll have to see what happens in the next few sessions. There is reason for concern here, as there should be at this point. It may get more oversold on Tuesday. There is a very dramatic topping pattern, a major head-and-shoulders top, and a dramatic breakdown. It’s as dramatic as it gets. There has never been such a high volume spike down with technicals and breadth. So, take advantage, at the very least, and wait for a pullback to exit positions, or lighten up, or at the very least, hedge long-term positions on the next rally up. You may want to consider taking a short-term trade to the long side. If you are short, this is such severe decline, I would suggest, at least temporarily, cover the shorts and move to the sidelines. If you don’t want to go long, and/or consider exiting your put options, or ETFs, which have absolutely blown out to the up side. The Direxion Daily Financial Bear 3X Shares (FAZ), for example, going from 49 to 81 in just the last couple weeks.

That’s our review for now. We’ll be keeping close tabs on the market and reviewing more often over the next day, or two, with more videos intraday.

To view the complete video chart analysis of Harry's Chart of the Day, please visit http://www.thetechtrader.com/chartofday/. To sign up for a Free 15-Day Trial to Harry's Trading Diary, please visit https://www.thetechtrader.com/reg/cod

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