THE DOW AND S&P 500 ARE TESTING THEIR 200 AND 100-DAY MOVING AVERAGES RESPECTIVELY -- RUSSELL 2000 AND EUROZONE ISHARES NEAR SUPPORT AT SPRING LOWS -- OVERSOLD HIGH YIELD BOND ETF IS ALSO TESTING 200-DAY AVERAGE -- SEE YOU IN SEATTLE
DOW IS TESTING 200-DAY LINE ... The Dow Industrials have already reached their 200-day moving average. At the same time, the 14-day RSI line (above chart) has reached a short-term oversold reading at 30. This is an important test for the Dow and the rest of the market. Chart 2 shows the Russell 2000 Small Cap Index ($RUT) trying to stabilize just above its May low. Relative weakness in small caps has been one of the factors leading to the recent selloff. At the moment, the RUT is in a trading range between its 2014 highs and lows. It's very important that it stay above its May low. Otherwise, things could start looking a whole lot weaker.
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Chart 1
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Chart 2
S&P 500 IS TESTING 100-DAY LINE... The S&P 500 is testing potential support at its 100-day moving average (green line). It's also close to testing its spring high around 1900. If 1900 doesn't hold, the SPX could eventually drop all the way to its 200-day line. While a case can be made that the SPX is in a short-term oversold condition, its daily MACD lines (below chart) are still negative. They would have to turn positive to improve the market's short-term condition.
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Chart 3
EMU ISHARES NEAR SPRING LOW... Most of the selling in developed markets has been concentrated in the Eurozone. That's due to signs of economic weakness, deflation, and proximity to Russia and Ukraine. Weakness there has resulted in weakness here. Chart 4 shows EMU Index iShares (EZU) trading at the lowest level in six monthsm and well below its 200-day average. The 14-day RSI line (above chart) shows it in a short-term oversold condition. The EZU is also nearing a test of important support along its first quarter low (blue line). It's important that the EZU stay above that support line -- for them and for us.
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Chart 4
HIGH YIELD BOND ETF TESTS 200-DAY LINE... I recently expressed concern about heavy selling in the iBoxx High Yield Corporate Bond iShares (HYG). That's because high yield bonds and the stock market are highly correlated. The HYG has fallen sharply throughout July. Chart 5, however, shows the HYG in the process of testing its 200-day average (red arrow). Its 14-day RSI (above chart) is also oversold. A bounce in the HYG could relieve some short-term pressure in stocks.
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Chart 5
SEE YOU IN SEATTLE... I'm heading out shortly to Seattle for Chartcon 2014 on Friday and Saturday. I'm very much looking forward to seeing as many of you as possible. It's always a fun weekend with lots of great market information. This year's lineup of speakers is truly exceptional. Hope to see you there.
