THE DOW ENDS THE MONTH ON A WEAK NOTE -- $SPX FALLS STRAIGHT THROUGH ITS 50 DMA -- THE RUSSELL 2000 ($RUT) TOUCHES THE 200 DMA AGAIN -- RUSSELL 2000 ($RUT) SHOWS SIMILARITIES TO 2011 -- TECH NAMES FAIL TO MAKE PROGRESS AFTER EARNINGS

THE DOW ENDS THE MONTH ON A WEAK NOTE... The Dow Jones Industrial Average ($INDU) tested the 50 DMA yesterday on Chart 1. Today it failed to hold above it and spent all day below the commonly watched average and closed on the low of the day, week and month. This is the farthest percentage below the 50 DMA the $INDU has been since February. The Dow Jones Industrials Average made 9 week lows today. There is a major zone of support starting at 16600 to 16400. This support area is very broad as the market spent 3 months trying to move above and stay above 16400. The next major area for horizontal support is drawn on the chart at 16050. The RSI made new lows today going back to February as well.On Chart 2, the Monthly MACD did not cross yet, but the signal line is the closest it has been in over 18 months. We can see this month generated an outside bar and a rare down month on the chart. Outside bars are defined by a higher high and a lower low than the previous bar.

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Chart 1

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Chart 2

$SPX FALLS STRAIGHT THROUGH ITS 50 DMA... The S&P 500 ($SPX) touched and passed through its 50 DMA for the first time in 2 months and closed at the lowest prices of July. The price action on Chart 3 today made 7 week lows. While there has been some negative divergence building on the $SPX, today was the first day of any real trend change since mid-April. Since mid-April, every low has been a higher low from week to week. We still have a trend of higher highs, so the rebound will be the test of any short-term trend change. Sometimes a trend change warning signal occurs when markets suddenly show more volatility. With the market down around 2% today after going months with 1% moves as a maximum, this may be another indication of an intermediate trend change.

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Chart 3

THE RUSSELL 2000 ($RUT) TOUCHES THE 200 DMA AGAIN... The Russell 2000 ($RUT) made its all time high on the first day of the month and closed the month on the close of the lowest candle. With the Russell 2000, there is lots to discuss on Chart 4. First of all, the Russell 2000 has been the weakest index of them all. The Russell dropped 7.5% within July from the all time high. What is more important is that the Russell tested the previous high of March 4th with the push to the new high on July 1. The failure to hold the high was discussed in a few of the market messages but to hit resistance and stop at such an important level (previous high) means we should be careful of a broader implication. In hindsight, we definitely have an intermediate term double top firmly in place. The blue neckline will become a critical area to watch.

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Chart 4

$RUT SHOWS SIMILARITIES TO 2011... The Russell ultimately lost 31% in 2011. Here are some similar setups that you can see in Chart 5 that reflect to current conditions.
1) April top , early July top 2011
March top, early July top 2014
2) Russell falls below the 200 DMA on the last day of July in 2011
Russell falls below the 200 DMA on the last day of July in 2014
3) Stalled at the high the first week of July 2011, closed on the month low
Stalled at the high the first week of July 2014, closed on the month low
4) MACD profile from 2011 shows sharp drop on the Early July high
MACD profile from 2014 shows sharp drop on the Early July high
5) Russell consolidation / topping pattern in 2011 with 7 months of sideways movement.
Russell consolidation / topping pattern in 2014 with 9 months of sideways movement

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Chart 5

TECH NAMES FAIL TO MAKE PROGRESS AFTER EARNINGS... Microsoft (MSFT), Apple (AAPL), Intel (INTC), Qualcomm (QCOM) and Amazon(AMZN) are five behemoths from the 2000 era. They have been in vogue for at least the last year. As small caps started to weaken, institutional investors moved into large cap names. Newer additions to the behemoth club include Facebook (FB) and Google (GOOGL). Recently Microsoft and Qualcomm tried to take our their year 2000 highs. Both stocks topped within a week of January 1, 2000. Apple and Amazon have easily taken out the year 2000 highs. Intel remains at about 60% of its former glory. Most of these stocks made multi year highs in July. Over the last year, the majority of these stocks vastly outperformed the large cap SPY ETF as shown in Chart 6. It would seem Amazon is very out of favour now but it does find a seasonal low in the summer months usually.
Looking across the Nasdaq Composite ($COMPQ) on Chart 7, the price action closed on the major support / resistance zone going back to March 2014. The price action today also broke the uptrend line off the May 2014 lows.

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Chart 6

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Chart 7

So most of the large cap stocks mentioned have been the generals in the market, marching us to higher highs. This earnings period has seen the markets move sideways in a range until today. All of these tech leaders mentioned above have been selling off since their earnings report. By pointing an arrow at the market response for the earnings, we can see all of them are trading lower even after some had upside blowout reports. The arrows are placed on the close of the day of trading after the earnings were announced.

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Chart 8

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Chart 9

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Chart 10

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Chart 11

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Chart 12

Both Qualcomm (QCOM) and Amazon (AMZN) shares opened down hard after earnings, and the market continues to sell their shares as well. Based on the fact that the small caps have less than 45% of the companies trading above the 200 DMA, and now the blockbuster large caps seem to be selling off in a correlated manner, I would watch to see if this weakness continues over the upcoming month.

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Chart 13

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Chart 14

GOOGLE MIGHT BE BUILDING AN INTERMEDIATE TERM DOUBLE TOP... Recently I noticed the current weekly pattern on Google (GOOGL) {Chart 15} is very similar to Apple (AAPL) (Chart 16) at the 2012 top. When these strong companies let go, it is very important to watch as the institutions look for weakness in relative strength. If the purple line breaks in the top indicator panel and Google starts to under perform the $SPX, we could expect Google to sell off like Apple did as funds lower their position size in under performers. At this point it is extremely important to watch the stock as the PPO (percentage Price Oscillator) appears to be putting in a much lower high on the second peak of the double top. That would indicate the momentum is very low at this point.

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Chart 15

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Chart 16

REMEMBER $LIBOR3? IT TRIGGERED A SIGNAL THIS WEEK... The London Interbank Borrowing Rate For 3 Month Period ($LIBOR3) was one of the big clues that there were banking problems in Europe. At this point the $LIBOR3 is starting to change on Chart 17 for the first time since July 2011.
Green Arrows mean things are getting better and the banks are willing to lend between themselves. Green points to when the $LIBOR3 rate falls below the 50 DMA.
Blue arrows means the $LIBOR3 rate has moved above the 50 DMA
Red arrows means the $LIBOR3 rate has moved above the 200 DMA
While hardly in panic mode, this chart is starting to turn up. Looking left on the chart, a break of the 200 DMA usually led to a sudden surge. We'll see if the big move this week continues.

On Chart 18 you'll find the last 8 months (daily) on the chart.

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Chart 17

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Chart 18

There are enough things changing in trend to mark the potential for a more significant pullback. We'll see if that plays out over the next few weeks. John mentioned the $USD in yesterday's market message. John's Market Message. Major trend changes in the currencies usually happens near equity market turns. Hopefully we'll see you at Chartcon 2014 in Seattle next week!
Good trading,
Greg Schnell, CMT