SPECIAL SITUATION -- $COMPQ CONFIRMS TREND LINE BREAK -- THE $SPX CLOSES ON THE LOWER BOLLINGER BAND -- $USB 30 YEAR TREASURY IS BACK ABOVE 200 DMA
$COMPQ CONFIRMS TREND LINE BREAK... The $COMPQ has broken the long trend line off the Dec 2012 low. After yesterdays strong push up, it backtested the trend line from the underside. From there it pushed straight down. A 3% down day is very uncommon over the last few years so the mood of the market has definitely changed here. Chart 1 shows an 8 month view of the $COMPQ.
We are down around 7.5% at this point. A couple of interesting things are going on here.The $COMPQ has been gently pulling back since the early March high. In the last week we have had two big down days that have added speed to the downside. Directly below us is a big area of support. First of all is the previous low. Throughout the support area are different support and resistance clues. Directly under it is the 200 DMA. As we head into Options expiration next week (April 17) it will be on Thursday as Friday is Good Friday. When looking back historically, I noticed a lot of reversal activity around OE day so traders will need to be on watch. A lot of my indicators trying to pick a bottom have not reached extreme levels yet so there is more room to move lower from a technical perspective. By that I mean that the indicators and oscillators on various charts have not reached extreme levels yet that usually indicate a bottom.
(click to view a live version of this chart)
Chart 1
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Chart 2
THE $SPX CLOSES ON THE LOWER BOLLINGER BAND... While the $COMPQ has dropped faster than the $SPX, the $SPX closed below the support level that has supported the market up to now. The $SPX still sits well above the 200 DMA. If we do move all the way to the 200 DMA, that would be another drop of 4% as shown in Chart 3.
The close at the lower Bollinger Bands is significant. The January market pull back tested the lower BB but did not bounce immediately. It pushed lower. Price action on Friday (April 11) will be important to see if the BB provides any support.
Lastly, we broke below the 50 DMA as well. So the previous lows, the 50 DMA and the lower BB were all support under the price and the first two have let go.
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Chart 3
$USB 30 YEAR TREASURY HITS RESISTANCE 5 TIMES IN 50 DAYS... The 30 Year has found resistance at this level 5 times in 50 days. A breakout to the upside would imply investors looking for more safety. Chart 4 shows the price to be just above the 200 DMA and just below the resistance line.
If we look at the broader view over 5 years shown in Chart 5, we can see two huge surges in the bond market. Investors should be aware of the bond market's potential to make a rapid, serious move should the trend line break. The break of the 50 DMA is also excellent resistancel, so this chart is at a critical juncture.The green shaded area is the $SPX. As bonds soared, the $SPX pulled back hard.
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Chart 4
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Chart 5
We'll do more analysis of this market over the weekend when we will provide more articles about different aspects of the current market. Both JPM and WFC are reporting on Friday, so that may be a big clue to the direction of the KBE chart. The bank chart needs to be watched closely for more clues to the broader market
Good trading,
Greg Schnell
