$SPY, $STUDY The
technical condition of the market was mixed last week leaving the Major Market
Model, Short Term Traders Model and the Asset Allocation Recommendation
unchanged. The major averages were
unable to build off of the previous week’s relief rally and the five-day span
left every index back in the red for the year and back in correction territory.
Every sector was lower
with the Utilities Sector (XLU), Healthcare Sector (XLV) and Financial Sector
(XLF) all down more than 4%. Internal breadth deteriorated but didn’t approach
the wreckage of last week.
Bearish sentiment
increased and closed at levels associated with market bottoms indicating that
the selling may soon be abating. The Percentage of Bullish Advisors fell to
27.8% last week ending just above the 26.4% level hit in March 2009. That
coincided with the bottom of the bear market that had started the previous
year. The Percentage of Bearish Advisors jumped to 26.8%, which was the highest
level since the fall of 2011. Advisors’ looking for a market correction was
above 40% for a fifth week showing the pros were shying away from buying dips.
In addition, VIX remained elevated after peaking the previous week at 53.3. I
noted last week that previous jumps above 40 in the VIX led to the market being
down three to four months out. In particular, the fall of 2009, the spring of
2010 and the fall of 2011.
After Friday’s drop the targeted
levels for DJIA, S&P 500 and NASDAQ will be the lows of 8/24/15. A
successful retest of those lows could bring buyers in off the sidelines. The ‘Numbers
to Watch’ below are levels that traders will keep an eye on to see if they
hold. If those levels provide support it’s likely that the market will then
trade in a volatile range ahead of the Federal Reserve’s September policy
meeting. For now, expect downward pressure to remain over the near term with
the occasional snap-back relief rally.
For the S&P 500,
watch for support at 1920, followed by 1900. Resistance stands near 1967,
followed by 1975.
